Shell reported a 30% drop in 2022 profits compared to 2021’s record levels, as lower oil and gas prices reduced earnings across the company’s operations. However, strong performance in liquefied natural gas (LNG) trading and upstream production helped Shell beat expectations. The company announced new share buybacks as it continues to reward investors.
Key Takeaways:
- Shell’s full-year 2022 adjusted earnings fell 30% to $28 billion from 2021’s record of $40 billion
- Q4 2022 earnings dropped to $9.8 billion, down from $11.5 billion in Q3 2022
- Share buybacks increased to $3.5 billion for Q1 2023
- Shell beats expectations and announces dividend increase
- Profits still historically strong due to high oil and gas prices through most of 2022
- LNG trading success boosted results as Shell capitalizes on global energy crisis
Financial Results
Shell reported full-year 2022 adjusted earnings of $28 billion, a 30% decline compared to the previous year’s record profits of $40 billion. However, 2022 remained Shell’s second most profitable year ever.
Q4 earnings fell to $9.8 billion from $11.5 billion in Q3 as lower oil and gas realizations reduced upstream and integrated gas earnings.
| Division | Q4 2022 Earnings |
|---|---|
| Integrated Gas | $3.5 billion |
| Upstream | $3.4 billion |
| Marketing | $1.3 billion |
| Chemicals and Products | $1 billion |
| Corporate | $0.6 billion |
Full-year earnings were impacted by a drop in global energy prices in the second half of 2022 as fears of recession dampened oil and gas demand. Benchmark Brent crude averaged $101 per barrel in 2022 compared to $71 in 2021.
However, prices still remain historically high after Russia’s invasion of Ukraine disrupted energy supplies. Most of Shell’s record profits were earned in the first half of 2022 when oil traded above $120 per barrel.
Lower refining margins also weighed on earnings in Q4 as the processing division slid to a loss. However chemical margins improved from the prior quarter.
Shareholder Returns
Despite the profit decline, Shell announced an additional $3.5 billion in share repurchases in Q1 2023. That comes after $19 billion was spent buying back shares in 2022 to reward investors.
Shell also raised its dividend by 15% for Q4 and announced annual dividend growth of 12%. The company remains committed to distributing 30% of cash flow to shareholders and expects to spend over $30 billion on dividends and buybacks this year.
The payouts aim to meet investor demands after years of slim returns weighed on Shell’s share price. But the policies have drawn criticism from environmental groups who say more profits should be invested in renewable energy.
“While Shell counts its record profits, people around the globe count the damage from the record floods, heat, and pollution that Shell has caused,” said Greenpeace UK’s Elena Polisano.
Performance Details
Shell’s integrated gas division remains its largest earnings driver, generating $12.8 billion in 2022 despite a 36% drop versus last year. While LNG prices slipped from their mid-2022 peak, they remain well above historical levels.
Shell’s trading operation took advantage by optimizing LNG supply routes amid ongoing disruption. The division is also benefiting from new LNG capacity started in 2022.
Upstream oil and gas production posted a $12.2 billion profit in 2022, down 20% on the year but beating expectations. Higher prices boosted earnings even as output slipped 2% due to field declines and asset sales.
Strong punctuality and utilization across Shell’s oil and gas assets also aided upstream results. New projects will help offset declining volumes from mature fields.
Meanwhile chemicals swung to a $1.3 billion profit last year thanks to improved margins. But refining profits sank 84% to just over $1 billion as processing struggled with lower utilization and weak margins in Q4.
| Business Segment | 2022 Earnings | 2021 Earnings | Year-over-Year Change |
|---|
| Integrated Gas | $12.8 billion | $20 billion | -36%
| Upstream | $12.2 billion | $15.2 billion | -20%
| Marketing | $6.6 billion | $5.6 billion | +18%
| Chemicals | $1.3 billion | -$0.2 billion | +850%
| Refining & Trading | $1.1 billion | $6.9 billion | -84%
Outlook
Shell expects lower earnings in 2023 as analysts forecast average Brent prices around $80 per barrel this year. But the company believes gearing more investments towards gas will pay off over the long run.
“We believe natural gas has an important role to play in the energy transition,” CEO Wael Sawan said.
Sawan officially took over Shell’s top role this January and reaffirmed plans to keep spending $23-$27 billion per year on new oil, gas, and low carbon energy projects.
Most of Shell’s budget is still directed at oil and gas, stirring criticism it is not transitioning fast enough. But management argues traditional fuels are needed to meet energy demand as alternatives like renewables and hydrogen rapidly scale up.
Shell does plan to grow investments in its electric vehicle charging network, biofuels production, and wind a solar power over the next few years. But hydrocarbons will drive near-term results and cash flows as management vows to keep rewarding shareholders.
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