Shell profits more than double to record $40bn

Shell made a record annual profit for 2022 of almost $40bn after a tumultuous year in energy markets that drove up costs for households and highlighted many of the challenges involved in the world’s transition away from hydrocarbons.

Europe’s largest oil and gas company said on Thursday that adjusted earnings had more than doubled to $39.9bn, smashing the previous record of $28.4bn set in 2008.

The highest profits in Shell’s 115-year history continued a record set of results for the world’s biggest energy companies, which have all benefited from high prices for fossil fuels in the past 12 months amid the upheaval caused by Russia’s invasion of Ukraine.

ExxonMobil this week reported a $55.7bn profit for 2022, the highest annual earnings for a western oil company, after US rival Chevron made $36.5bn. BP and France’s TotalEnergies are due to report next week and are expected to bring the total profits of the supermajors for 2022 to almost $200bn.

The profits generated by Shell and its rivals have led to widespread calls for higher taxation, and both the EU and the UK have introduced new levies in the past year.

Shell said it had paid $13bn in tax worldwide in 2022 but only $100mn in the UK. It expects that to rise to more than $500mn this year after the UK increased the headline tax rate for oil and gas producers to 75 per cent by raising the energy profits levy, from 25 per cent to 35 per cent, from the start of January.

Ed Miliband, shadow energy secretary for the UK’s opposition Labour party, said prime minister Rishi Sunak’s government was letting companies like Shell “off the hook” by not raising taxes more to help shield consumers from further rises in energy bills.

Shell’s adjusted earnings of $9.8bn in the final three months of the year, its second-highest-ever quarterly figure, far exceeded average analyst estimates of $8bn.

The record profits mean Wael Sawan, who took over as Shell chief executive at the start of January, inherits the company in strong financial health. But Shell is still facing questions from investors about its ability to generate profits as it gradually shifts towards lower carbon energy.

Shell’s renewables and energy solutions business, which includes the trading of piped gas and power, generated less than 5 per cent of the group’s profits in 2022.

Sawan this week announced a shake-up of his executive committee that will bring the company’s low-carbon initiatives into a single division headed by the current downstream director Huibert Vigeveno.

“My fundamental belief is this is a company in very good health and we have absolutely the right strategy,” Sawan, said following the results announcement. However, he also stressed that the world needed a “balanced energy transition”, adding that the volatility of 2022 had demonstrated the consequences of “underinvesting” in energy, particularly gas.

Almost two-thirds of Shell’s profits in the final three months of the year came from its gas business, which includes the world’s largest liquefied natural gas trading operations. That division, integrated gas, generated adjusted earnings of $6bn in the fourth quarter as Shell sold 16.8mn tonnes of LNG, up from 15.7mn tonnes in the third quarter.

Despite the hydrocarbons-driven windfall and pressure from activists to invest more in low-carbon technologies, Shell left its capital spending guidance unchanged at $23bn-$27bn for 2023. “We intend to remain disciplined while delivering compelling shareholder returns,” Sawan said.

Shell distributed $26bn to shareholders in 2022 including $18bn in share buybacks. The company said it would buy back a further $4bn in stock in the first four months of 2023.

Shell made several low-carbon investments in 2022, including its $1.6bn acquisition of India’s Sprng Energy. However, the $3.5bn it spent in total on renewables and energy solutions was only 14 per cent of the group’s total capital spending of $24.8bn. In contrast, it spent $8.1bn in its upstream oil division and $4.2bn in its integrated gas division.

“Shell can’t claim to be in transition as long as investments in fossil fuels dwarf investments in renewables,” said Mark van Baal, founder of Follow This, an activist shareholder group.

Sinead Gorman, chief financial officer, said capital spending in renewables and energy solutions would remain at similar levels, but added that it did not represent the full extent of Shell’s group-wide investments in the energy transition.

Last year, about a third of Shell’s $64bn in combined operating and capital expenditure went to low and zero-carbon projects, she said.

Additional reporting Jim Pickard