Shell's fluctuating operating profits in 2023-2024 can be attributed to a combination of factors:
- Revenue Decline: Shell's revenue has experienced a decline, with a 10% decrease in 2024 compared to 2023, amounting to $284.3 billion1. This reduction in revenue has directly impacted net income, which fell by 17% from $19.4 billion in 2023 to $16.1 billion in 20241.
- Profit Margin Compression: The profit margin for Shell has decreased from 6.1% in 2023 to 5.7% in 20241. This decline was primarily driven by lower revenue, indicating that Shell's cost structure remained relatively stable, but the lower revenue base led to a lower overall profit.
- Exploration Well Write-Offs: Shell has experienced higher exploration well write-offs, which have impacted profitability. For instance, in the fourth quarter, the company reported lower prices, tighter margins, higher exploration well write-offs, and the expiration of hedging contracts on liquified natural gas (LNG) trading2.
- Dividend and Buyback Impact: Shell has increased its dividend and announced a $3.5 billion share buyback plan, which could indicate that the company is retaining less earnings. However, the impact of these actions on operating profits is not directly quantifiable but suggests a strategic shift in how Shell manages its cash flow2.
In summary, Shell's fluctuating operating profits are primarily driven by revenue declines and profit margin compression, influenced by factors such as lower commodity prices, higher exploration costs, and strategic decisions regarding dividends and share buybacks.