Chevron and Exxon have their work cut out as Shell shares rally on stellar earnings 

Shell, Europe’s largest oil and gas firm, delivered a standout performance in 2023 despite facing significantly lower oil prices compared to the previous year. 

Following Russia's invasion of Ukraine, oil companies saw a surge in crude prices, leading to unprecedented profits in 2022. Shell reported adjusted earnings of $28.3 billion for 2023 — a 29% decrease from the record haul the year before. Despite the decline, Shell announced it had returned $23 billion to its shareholders last year, alongside plans to increase its dividend payout and continue its share buyback scheme. 

In a comment to MarketWatch, AJ Bell analyst Jack Pattinson said volatility was to be expected: 

“Lower oil prices meant Shell’s full year earnings saw a substantial drop in 2023 but that’s the nature of the beast – oil company earnings are as volatile as the energy prices they are tied to”.   

Shell’s $54.2 billion in cash flow from operations was the second-highest in company history, as per the report. 

In London, Shell shares rose by 2.5%, and its American depositary receipts saw a 2.2% increase in premarket trading. S&P 500 futures and the FTSE 100 index in the UK saw gains of 0.3% and 0.4% respectively. 

Shell's robust fourth-quarter performance — the company made adjusted earnings of $7.3 billion in Q4 2023 compared to analyst estimates of $6.04 billion — was bolstered by its trading operations and its liquified natural gas segment, which makes up a larger portion of its business compared to its competitors. Per-share adjusted profit of $1.11 also topped forecasts of 91 cents. 

Shell's robust trading in LNG played a crucial role in steering through the downturn in Europe's energy markets, which witnessed an 18% annual drop in Brent crude prices to an average of $83 a barrel in 2023, alongside a significant 68% decrease in natural gas prices to $13 per MMBtu on the Netherlands' EU TTF market. 

On Thursday, Shell also announced a further $3.5bn of share buybacks and increased its dividend by 4% to $0.34 a share. Shell’s dividend payout still remains below the $0.47 a share paid each quarter from 2014 to 2019, as per the Financial Times. 

“So far so good”: Shell says it is actively monitoring situation in the Red Sea 

Despite conflict in the Middle East and continuing insecurity in the Red Sea, Shell CEO Wael Sawan told the Financial Times that the company saw “resilience in the economy at the moment”. “We will see where the geopolitical considerations take us,” he added, referring to conflict in the Middle East and the shipping disruptions in the Red Sea, “but so far so good”. 

Sawan mentioned that Shell is closely observing the developments in the Red Sea, which have led certain firms to reroute their shipments due to attacks by Houthi rebels. Despite these challenges, Shell has successfully identified "alternative methods" to fulfill the needs of its customers. 

“It is a bit easier on crude and LNG, where we are able to tap into various supply points that we have to meet customer demand,” he said. “A bit tougher on [refined] oil products because most of the flows typically go from east to west, so that gets impacted.” 

Shell earnings set the stage for Chevron and Exxon reports on Friday 

Shell’s rivals, U.S.-based oil corporations Exxon and Chevron, which had a less favorable performance in 2023, are scheduled to announce their earnings on Friday. BP, another London-based energy giant, is set to report the following week. 

Despite Shell's impressive results last year, the company still has a lower valuation on the market than Exxon or Chevron. Shell shares are trading at 8 times forward earnings, compared to the 11 times earnings valuation of its American counterparts. 

Shell unveils cost-cutting measures 

The company also revealed plans to reduce capital expenditures in the coming years below previous projections and to lower operating expenses. 

"As we enter 2024 we are continuing to simplify our organisation with a focus on delivering more value with less emissions," CEO Wael Sawan said. 

Shell incurred pre-tax impairment charges totaling $5.5 billion, attributing $2.5 billion to the devaluation of its chemical operations in Singapore, $1.2 billion to adjustments in its oil and gas activities across Nigeria, Britain, and North America, and $873 million primarily to revised LNG production forecasts in Australia. 

Sawan, who took the helm at Shell in January 2023, vowed to reorient the firm towards high-margin initiatives, maintaining stable oil production, and expanding its natural gas output. Shell has already begun a series of staff cuts across the organization, including in its low-carbon solutions sector, aiming for cost savings of up to $3 billion. 

According to Chief Financial Officer Sinead Gorman, Shell has successfully reduced its annual operating expenses by $1 billion over the previous year. For 2023, Shell's capital investments amounted to $24.4 billion, with projections for the current year's expenditure estimated to be between $22 billion and $25 billion. 

Shell share price forecasts: Analysts moderately bullish on SHEL stock 

According to 15 analysts surveyed by TipRanks that offered 12-month Shell stock price targets, the consensus forecast for SHEL last stood at 3,072.46p — a potential 22.43% upside from its last price from 2,509.50p as of February 1, 2024.       

The highest listed Shell share price forecast on TipRanks was 3,800p, while the lowest was listed at 2,600p. Of the 15 analysts surveyed, 11 offered a Buy rating on SHEL stock, while 4 had it as a Hold, and none rated it a Sell.  

Ahead of the earnings report, UK investment bank Barclays maintained an Overweight rating on Shell shares along with a 3,800p price target, saying the oil giant had begun its “first sprint” under new leadership — however, the bank did note that more needed to be done to improve performance.