Shell’s fourth quarter revenue fell from $78.7bn to $66.3bn. Underlying profit halved to $3.6bn, falling short of analyst expectations. The weak performance reflected lower margins in its trading businesses as well as the marketing division. Lower oil prices also played their part as well as non-cash write offs of exploration wells.
Free cash flow improved by $1.8bn to $8.7bn reflecting both strong cash generation in the business and lower investment outlays. Net debt fell from $43.5bn to $38.8bn.
Investment expenditure is expected to fall in 2025, but no specifics have yet been given.
Upstream production in the first quarter is expected to be similar to levels seen at the end of 2024, as are sales volumes in the marketing division. However Integrated Gas production should increase as the Pearl Gas to Liquids plant comes back on stream. Refinery and chemical plant utilisation is also expected to improve.
The quarterly dividend was raised 4% to $0.358 per share with a further $3.5bn set aside for share buybacks before the first quarter results.
The shares were flat in early trading.
Our view
Shell’s relentless focus on cash generation allowed it to increase payouts to shareholders and reduce its net debt levels, despite a dip in profits over 2024. For now, Shell’s main focus remains very much on oil & gas. With the company’s production of the black stuff set to remain stable through to 2030, oil prices will remain an unpredictable but crucial element of the group’s fortunes, and with industry production set to rise in 2025 and 2026, there could be more pressure to come.
However, Shell's not a one-trick pony. It’s the market leader in terms of Liquefied Natural Gas, which may benefit from growth drivers such as the drive for energy independence, rising usage in heavy-duty transport, and waning popularity of coal in power generation.
In distribution, Shell is particularly well placed to provide lower carbon options to motorists. Its global network of 47,000 service stations is the largest of all the oil majors. By 2030, it's hoping to nearly quadruple the size of its Electric Vehicle charging estate, to around 200,000 connection points.
Strong financials enable it to self-fund the significant organic investment required to replace oil reserves and pursue renewable energy and low-carbon fuel initiatives. Shell continues to tweak its portfolio, recently agreeing to ditch its controversial oil sands interest in favour of an increased stake in a large-scale Carbon Capture and Storage facility. It’s also active in electricity generation, recently adding to its assets with the acquisition of a combined-cycle power plant, which can be an efficient way of providing backup for renewable energy sources if, for example, the wind fails to blow.
Shell invests over $20bn each year across its business, but that’s set to fall in 2025. We’re keen to get more detail in the strategic update planned for March 2025, where we hope to see an investment approach that focuses on both financial returns and sustainable growth. If the purse strings are pulled too tightly it could raise some questions over Shell’s longer-term growth prospects. When it comes to cash allocation there needs to be a sensible balance between shareholder returns, debt reduction and investment.
Shell’s valuation has held up well against a backdrop of falling oil prices, suggesting that investors are supportive of its financial discipline and priorities. The group’s not immune to further volatility in oil prices, but the strong financial position does help provide flexibility.
For now, energy prices and with them, Shell's current focus on shareholder returns are the main drivers of sentiment. Cash flows currently look healthy to us, but investors should be prepared for ups and down along the way.
Environmental, social and governance (ESG) risk
Environmental concerns are the primary driver of ESG risk for oil and gas producers, with carbon emissions and waste disposal being the main issues. Health and safety, community relations and ethical governance are also contributors to ESG risk.
According to Sustainalytics, Shell's management of material ESG issues is strong.
This reflects a change in its business mix over recent years towards lower carbon fuels such as gas and L&G, and the exit from some of its more controversial assets. Despite Shell's numerous environmental and social targets, the company's impact on the environment and society remains relatively high. The decision to hold oil production steady till the end of the decade is likely to be met with some disappointment.
Controversies relating to environmental degradation, bribery and corruption, and community relations continue to play an important role in how Shell is perceived globally, as well as its financial disclosures around its renewables business.
Shell key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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