Shell dividend hike drives shares higher despite profit miss

By Arunima Kumar

(Reuters) -Shell reported a 16% drop in profit for 2024 on Thursday amid weakness in oil and gas prices and in demand, but shares rose after it raised its dividend by 4% and extended its share buyback programme.

The oil major also announced a $3.5 billion buyback for the current quarter, making this the 13th consecutive quarter of at least $3 billion of share repurchases.

Its shares gained over 2% even as the group reported that its 2024 adjusted earnings, its definition of net profit, fell to $23.72 billion from $28.25 billion in 2023, dented by narrower liquefied natural gas (LNG) trading margins, lower oil and gas prices, and weaker refining margins.

That fell short of a $24.64 billion consensus compiled by LSEG and $24.11 billion forecast by analysts polled by Vara Research.

Shell, the first major energy company to report results, said fourth-quarter earnings nearly halved from the previous year to $3.66 billion, also missing analysts' expectations.

"As expected, Shell reported 4Q results this morning which showed relatively soft earnings, but continued strong cash generation," RBC Capital Markets analyst Biraj Borkhataria said in a note, also highlighting the consistency with which the group has been returning cash to shareholders.

In his prepared remarks, CEO Wael Sawan said the share buybacks were "underpinned by the significant progress that we are making as an organisation."

Sawan has been focused on cutting costs and pivoting the company back to its most profitable sectors — oil, gas, and biofuels — while shifting away from renewable power.

"We achieved a (cost) reduction of $3.1 billion by the end of 2024, one year ahead of our end-2025 target date, and above the range of $2 to $3 billion that we set in 2023," he said.

Shell's fourth-quarter earnings included $2.2 billion in impairments, part of which was a $1 billion write-off for a U.S. offshore wind project.

CFO Sinead Gorman told reporters that the project did not align with company's capabilities or return goals, and Shell was looking to monetize it.

The world's leading oil and gas companies experienced a decline in profits through 2024, following record earnings in the previous two years, as energy prices stabilised and oil demand weakened.

Shell also expects 2025 capital expenditure to fall below last year's $21 billion range, with more details to be shared at its capital markets day in March.

The group's refining operations reported an adjusted loss of $229 million in the chemicals and products unit, compared to a $29 million profit last year.

Refining margins weakened globally due to reduced economic activity and new refineries opening in Asia and Africa.

Executives said on a call with analysts that Shell had no plans to get out of refining altogether, but was not looking to expand there either.

The company is trying to sell its stake in a German refinery and intends to shut down a plant in Wesseling, Germany, following the sale of its Singapore refining and chemicals hub last year, one of the largest of its kind in the world.

In the fourth quarter, Shell ran its refineries at 76% capacity, and said it expected to increase that to 80-88% in the first quarter.

Shell also said it did not have a timeline for arbitration over LNG supply from Venture Global's Calcasieu Pass facility.

Venture Global, whose $58 billion market debut fell short of high expectations last week, began generating proceeds in 2022 with its Calcasieu Pass facility.

However, delays in commercial operations have caused contract disputes with customers, including BP, Shell and Italy's Edison, over missed cargoes.

(Reporting by Arunima Kumar in Bengaluru; editing by Savio D'Souza, Jason Neely, Tomasz Janowski and Bernadette Baum)