The biggest energy company in Europe, Shell, had record-breaking profits for 2022, at just over $42 billion. This is over twice as much as its 2021 profit and could be a record for any other company based in the U.K.
Shell, and the industry in general, has been able to take advantage of the rise in price for oil and natural gas, which occurred with the Russian invasion of Ukraine. Exxon Mobil raked in a similarly high profit at $56 billion.
Russia closing its energy source allowed for a huge spike in liquefied natural gas or LNG, and this is where most of the profit came in for Shell at the end of the year.
Ending the year with the fourth quarter saw Shell closing almost $10 billion for their earnings which was over 50% from the same period a year before.
With such a healthy profit, Shell is doing a few things. First, they’re giving back part of it to their shareholders through an increase in the dividend at 15%. It will also use the profits to do a share buyback of about $4 billion.
All of this came with a new CEO in charge, who is Wael Sawan. He replaced Ben van Beurden, who had been running shell for nine years.
Yet even with these figures, a continuation of the war and conflict in Ukraine it’s changing the operating standards for companies such as Shell, leaving Mr. Sawan to navigate the company to its new future.
Even as little as a year ago, the oil and gas industry and subsequent investments in them were some of the worst investments to go into and acted more like liabilities than assets. As a result, many companies were pushing towards green energy as a way to stay relevant and help the environment. Yet recently, fossil fuels have become both worth more and also are valued more as secure energy.
Investors have similar sentiments if renewable or green energy can produce the typical returns these companies have been getting, which helps buy the stock back and ensure a consistent flow of dividends. As a result, investors have switched to more traditional companies focused on fossil fuels such as Chevron and Exxon, versus European energy companies focused on long-term renewable energy.
Biraj Borkhataria, an analyst at RBC Capital Markets, said, “Shell needs to consider its existing business as well as its future business.”
Recently, Mr. Sawan had a presentation where he worked to quell investors’ fears and stated the company would take a cautious move to renewable energy sources, slowing down the pace of the prior CEO.
“We cannot move so fast without disrupting the existing energy infrastructure and system. We will find a balance for the right type of transition,” he stated.
Mr. Sawan continued to state that he will curb the ambitious growth plans for Shell as a primary electricity provider and will review all operations and business units, such as Shell Energy.
On the other side of the spectrum, governments and activities are pushing all in the industry to pay their fair share via tax and want to have more clean energy on the horizon.
Such high profits from Shell have had critics question them, as the average British consumer continues to struggle with their budgets, especially around energy costs. As a result, British authorities are seeking higher taxes for corporations to help provide relief for these energy cost increases.
Ed Davey, who is head of the Liberal Democrats, tweeted recently.
Rishi Sunak was warned as Chancellor and PM that oil and gas giants were making outrageous profits. He ignored us, and now families struggle as oil companies rake it in. Yet another Tory failure.
— Ed Davey (@EdwardJDavey) February 2, 2023
Mr. Sawan continued his outreach and let reporters know recently that one-fifth of all the natural gas came through Shell infrastructure the past year. He stated that the industry invests for the long term and that these immediate tax hikes would cause more harm and “weaken” the existing industry down the line. He stated there are already plans to spend around $25 billion within the nation, but that it would be criticized and said: “investors would worry about stability.”
Those working to preserve the environment already feel that Shell isn’t doing its part with its earnings toward renewable energy initiatives. Even though investments increased in total to $3.5 billion through 2022, it was a mere amount compared to the total $25 billion of investments.
The head of Follow This (environmental group), Mark van Baal, stated, “it doesn’t feel like a transition when most of the investment into the company goes towards fossil fuels over clean energy.”
It’s obvious that Shell even focused on investor relations by giving such high dividends and having huge buybacks, which amount to around $26 billion, versus using those funds to invest in clean energy sources. However, Shell countered this type of information and stated that around a third of its spending goes towards low-carbon-based energy investments.
