By Ron Bousso
LONDON (Reuters) -Shell reported a $28 billion profit for 2023 on Thursday after beating fourth quarter earnings forecasts on strong liquefied natural gas (LNG) trading, allowing the oil giant to increase its dividend and extend share repurchases.
Annual profit was down 30% from the previous year's record, marked by lower chemicals and refining profit margins and slower fuel sales amid sluggish global economic activity following a blockbuster 2022 fuelled by a surge in energy prices after Russia's invasion of Ukraine.
The British company increased its fourth-quarter dividend by 4% and said it would repurchase a further $3.5 billion of its shares over the next three months, a similar rate to the previous three months.
Shell (LON:RDSa)'s payouts to shareholders reached around $23 billion in 2023, over 10% of the company's market value, highlighting investors' focus on returns as the sector grapples with an uncertain outlook for fossil fuels.
Shell is the first major global energy company to report 2023 full year results.
Its shares closed 2.4% higher. They have outperformed rivals over the past year, rising by over 8%.
Chief Executive Wael Sawan took over in January 2023 with a vow to revamp Shell's strategy to focus on higher-margin projects, steady oil output and increase natural gas production.
In recent months Shell has begun company-wide staff reductions, including in its low-carbon solutions division.
In a possible sign of the changing priorities, the group's spending on its renewables and energy solutions division dropped in 2023 by 23% from the previous year to $2.7 billion, according to a Reuters analysis. That represents 11% of Shell's total capital spending in 2023, compared with 14% in 2022.
Total group capital expenditure reached $24.4 billion in 2023 and is expected to range from $22 billion to $25 billion this year.
"As we enter 2024 we are continuing to simplify our organisation with a focus on delivering more value with less emissions," CEO Sawan said.
LNG TRADING
Shell ended the year on a strong note, posting fourth-quarter adjusted earnings, its definition of net profit, of $7.3 billion, exceeding analysts' expectations of $6 billion profit but down from a record $9.8 billion a year earlier.
Strong LNG trading results in the quarter helped offset weaker refining and oil trading results, while chemicals posted a loss of $500 million.
"Shell's LNG division continues to help support cash generation and the company also appears to have operational momentum," RBC (TSX:RY) Capital Markets analyst Biraj Borkhataria said in a note.
GROWING RETURNS
Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) will report 2023 results on Friday, followed by BP (LON:BP) and TotalEnergies (EPA:TTEF) next week.
Shell increased its dividend by 4% from the previous quarter to $0.344 per share, a 20% increase on an annual basis. It is the seventh increase since its historic dividend cut in the wake of the COVID-19 pandemic.
Shareholder distributions in 2023 reached around $23 billion, over 40% of its cash flow from operations.
But in a worrying sign for the firm, Shell's free cash flow, or excess money after investment, fell to $7 billion in the fourth quarter, the lowest in 2023 and less than half the previous year's $15.5 billion.
Shell took pretax impairment charges of $5.5 billion in the quarter, with $2.5 billion due to reducing the value of its chemicals business in Singapore, $1.2 billion due to revisions of oil and gas operations in Nigeria, Britain and North America, and $873 million due mostly to revisions of LNG production estimates in Australia.