The Australasian Centre for Corporate Responsibility​ (ACCR) is commenting on Shell’s release of its Q4 2024 results.

Shell has announced that:

• shareholder distributions were above the target of 30-40% of CFFO for the year. An increase in the dividend of 4% was announced, as well as a $3.5bn shareholder buyback program.
• quarterly adjusted earnings were down by 39%, with reductions in all segments, except for Corporate & NCI.
• Integrated Gas earnings were down from $2.9bn to $2.2bn, which the company attributes to the expiry of hedging contracts, less LNG production and higher exploration write offs.
• LNG liquefaction volumes are down from 7.5 MT to 7.1 MT from Q3 to Q4. The newest guidance is that this will likely fall further in Q1 2025 to between 6.6-7.2 MT.
• LNG sales volumes also decreased from Q3 to Q4 2024, from 17 MT to 15.5 MT.
• annual cash capex of $21.1bn was 14% below 2023 cash capex and below guidance of $22-25bn.

The results come as Shell’s LNG business faces scrutiny at the upcoming annual general meeting (AGM), following the filing of a shareholder resolution by institutional investors.

Nick Mazan, UK Company Strategy Lead, ACCR, said:

“The lower annual capex and high shareholder distributions reflect the dwindling options for oil and gas companies, particularly as Shell seems to be dismantling its renewables and energy solutions business.

“Lower quarterly earnings from the Integrated Gas segment may be a taste of what Shell is likely to see in coming years, as LNG supply ramps up and we enter a new pricing regime in an oversupplied market.

“This could be a turning point as the power shifts from LNG sellers to buyers, because there is going to be increasing downward pressure on pricing as demand growth is unlikely to meet Shell’s bullish forecasts. For every $1/mmbtu LNG price fall, ACCR models that Shell will experience a -$13bn impact on NPV.

“The concern for investors is that Shell has made a big bet on LNG on the back of short-term record profits. However, new LNG facilities, and many of Shell’s LNG purchase contracts, will be in place for decades. Adopting bullish long-term assumptions based on recent history is not a prudent basis for making multi-decade, multi-billion dollar investments.

”Investor attention is already on Shell’s LNG portfolio, following the filing of a shareholder resolution by institutional investors asking for greater transparency around how Shell arrives at the levels of demand in its LNG Outlook.

“These results appear to be part of an overall trend of declining profits in the oil and gas sector, following two years of record earnings through a period of unprecedented upheaval in global energy markets. ACCR research shows that Shell has not materially updated the prior assumptions underpinning its LNG outlook to account for those upheavals – which have resulted in permanent demand destruction in many markets. As a result, investors have reason to query the soundness of Shell’s assumptions underpinning its bullish LNG outlook, and to be calling for greater transparency.”

Conor Constable, Head of Stewardship, Pensions & Investment Research Consultants Ltd (PIRC), said:

“Shell’s LNG Outlook is due to be released on the 25 February. As Shell has made such a big bet on LNG, investors should scrutinise this closely to ensure that the Company is using credible assumptions in its forecasts.”

Background

About PIRC

Pensions & Investment Research Consultants Ltd (PIRC) is Europe’s largest independent corporate governance and shareholder advisory consultancy with over 30 years’ experience in providing stewardship and proxy research services to institutional investors on environmental, social and governance issues. PIRC protects and enhances the long-term returns of major investors by promoting the highest corporate standards.

PIRC serve as representatives of Greater Manchester Pension Fund and Merseyside Pension Fund, who recently co-filed a shareholder resolution alongside ACCR on Shell’s LNG strategy.