Oil Giant Shell's Profit Drop: A Blip or a Trend?

British oil giant Shell on Thursday reported a significant drop in annual profit following a year of lower crude prices. The company posted adjusted earnings of $23.72 billion for the full-year 2024, compared to annual profit of $28.25 billion a year earlier. Analysts had expected Shell's full-year 2024 net profit to come in at $24.71 billion, according to an LSEG-compiled consensus. Shell posted weaker-than-anticipated adjusted earnings of $3.66 billion for the final quarter of 2024.

The world's top oil and gas companies have seen profits fall from record levels in 2022, when Russia's full-scale invasion of Ukraine prompted international benchmark Brent crude to jump to nearly $140 a barrel. Oil prices have since cooled amid faltering global demand, with Brent crude futures averaging $80 a barrel in 2024. That was about $2 a barrel less than the previous year, according to the. In a on Jan. 8, Shell trimmed its liquefied natural gas (LNG) production outlook for the final three months of 2024 and warned that trading results for its chemicals and oil products division were expected to be "significantly lower" on a quarterly basis.

Shares of the London-listed company are up around 4.8% year-to-date. This breaking news story is being updated.

A Shell petrol station in London, on Feb. 2, 2023.May James/ReutersShellSHEL-Nreported on Thursday third-quarter profits of $6-billion that exceeded forecasts by 12 per cent as higher liquefied natural gas (LNG) sales offset a sharp drop in oil refining and trading results.The results, together with a drop in debt and strong cash flow, could lift investor confidence in CEO Wael Sawan’s efforts to boost the company’s performance by the end of 2025 as he focuses on the most profitable businesses, primarily in oil, gas and biofuels.Shell shares were up 1.1 per cent in early London trading.Global refining margins have dropped sharply in recent months in the face of weaker economic activity and the startup of several new refineries in Asia and Africa, while oil prices fell 17 per cent in the quarter.Shell, which operates five refineries, saw a near 70 per cent annual drop in profits for its refining and chemicals division. But that was offset by a 13 per cent rise in profits from its LNG division, the British company’s largest business.“The consistency in performance is impressive,” Barclays analysts said in a note.French rival TotalEnergies reported on Thursday third quarter profits at a three-year low of $4.1-billion, hit by collapsing refining margins and upstream outages, missing market forecasts. And BP on Tuesday reported a 30 per cent drop in profits to $2.3-billion, the lowest in almost four years.Shell’s adjusted earnings of $6.03-billion, its definition of net profit, far exceeded analysts’ expectations of a $5.36-billion profit but were down 3 per cent from a year earlier.The company said it would buy back a further $3.5-billion of its shares over the next three months, at a similar rate to the previous quarter. Its dividend was unchanged at 34 cents per share.“We’ve delivered another strong set of results, showing resilience through the cycle and continuing to make significant progress in strengthening our balance sheet,” Chief Financial Officer Sinead Gorman told reporters.Shell, the world’s top LNG trader, reported sales of the superchilled fuel of 17 million metric tons versus 16 million a year earlier.Earnings for the oil and gas production division rose 9 per cent from a year earlier, with production increasing 3 per cent as new fields came on stream.In another positive sign, Shell’s net debt dropped to its lowest since 2015 at $35-billion, while its debt-to-market capitalization ratio declined to 15.7 per cent from 17.3 per cent a year earlier.Cashflow from operations rose to $14.7-billion in the quarter from $13.5-billion in the previous three months due to a $2.7-billion capital build. Shell said it expected capital spending to be below its guided range of $22-$24-billion for 2024.The company aims to cut costs by $2-3 billion between 2023 and the end of 2025. In recent months it scaled back renewables and hydrogen operations, retreated from European and Chinese power markets and sold refineries. It also cut its oil and gas exploration work force by 20 per cent, sources told Reuters in August.



In conclusion, Shell's significant drop in full-year profit is a concern, but the company's strong performance in other areas, such as LNG sales and cash flow, suggests that it remains resilient. As the company continues to focus on its most profitable businesses and reduce debt, investors should monitor its progress closely. The global energy market's volatility and geopolitical risks may continue to impact Shell's earnings, but the company's strategic adjustments and cost-cutting measures could help it maintain its competitive position.