By Rhodri Morgan
Of the two UK oil majors, Shell has been the quieter of late.
Market discussions in recent weeks have largely revolved around BP’s former finance boss-turned chief executive Murray Auchincloss.
Specifically, what his tenure could mean for a company that seems stuck between a rock and a hard place balancing shareholder returns with a demanding roadmap of green investment for the energy transition.
Shell, meanwhile, has seemingly blinkered itself to all else but shareholder returns.
“We need to continue to create profitable business models that can be scaled at pace to truly impact the de-carbonisation of the global energy system,” he told analysts in June last year.
“We will invest in the models that work – those with the highest returns that play to our strengths.”
So what can we expect from Shell when it reports on Thursday?
Where are we now?
General sentiment appears geared towards profits returning to earth for 2023 against 2022 levels.
The projected severity of the full-year fall varies from 40 per cent to around 30 per cent but with oil trading at around an $82 per barrel average through last year against $100 the year prior, returns will almost certainly come in lower.
Estimates for the full-year are tabled at around £21bn, with £4.75bn coming in Q4 which would mark a near-40 per cent decline.
Earlier this month, the company caveated its upcoming Q4 figures with a mixed trading update.
Profits are expected to be hit as a result of a non-cash impairment charge of $2.4-2.5bn and the chemicals unit is set to continue to drag on overall profitability.
Gas production, however, is set to be “significantly” higher than the third quarter thanks to seasonality and opportunities.
Finally going green?
On Thursday morning, the conversation will inevitably turn back to sustainability at some point and in this sense, Shell may not be as far removed from the situation facing BP as first appears.
A dip in oil and gas production isn’t expected to be announced, a fact shareholders will enjoy.
But they will also likely be keeping a close eye on where 2024’s cash allocation will lie and if it shows an awareness and commitment to driving renewable development.
It is now four years since Shell set out its goal to be “net zero” by the middle of the century, in line with the UK Government’s ambition.
However, in July last year the company abandoned a cornerstone green pledge; to reduce oil production by one to two per cent each year until 2030,
Shell said it was walking away from the pledge because it had already been achieved through the sale of its interest in the Permian Basin oilfield in Texas.
Continued fossil fuel asset sales are unlikely to appease green campaigners in lieu of hefty investment in clean energy and this may be a timely opportunity for the company to to revisit its climate commitments.
Let the good times roll?
The very real question facing Shell is if the enormous payout rates established unapologetically through Wael Sawan’s first year at the helm are sustainable.
Jefferies analyst Giacomo Romeosaid last month the company had provided a poor outlook for its cash flow from operation that leads to concerns around the company’s ability to maintain the current level of buybacks, which totalled $3.5bn for the three months from November to end of January.
That level, it would seem, is incongruous to the necessary energy transition drive that supermajors are coming under increasing pressure to not just contribute towards but devote significant capital to championing.
“We are not trying to imitate others,” Sawan told the Financial Times in November, speaking on if the company would engage in big acquisition hunting.
But if the pressure to go cleaner grows further, BP may have set a blueprint for Shell to consider.
