Shell profits double to $40 billion

Shell has posted record profits of nearly $40 billion for 2022 after a turbulent year in energy markets that drove up costs for households and exposed many of the challenges of moving away from hydrocarbons.

Europe's largest oil and gas company said Thursday that adjusted profit more than doubled to $39.9 billion, beating a previous record of $28.4 billion set in 2008.

The biggest gain in Shell's 115-year history continued a string of record results for the world's largest energy companies, all of which benefited from high fossil fuel prices over the past 12 months amid unrest caused by Russia's invasion of Ukraine to have.

ExxonMobil this week reported $55.7 billion in profit for 2022, the highest annual profit by a Western oil major after US rival Chevron posted $36.5 billion. BP and French company TotalEnergies are due to report next week and the supermajors' combined earnings for 2022 are expected to be close to $200 billion.

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

Shell said it will pay $13 billion in taxes worldwide in 2022, but only $100 million in the UK. The company expects that amount to rise to more than $500 million this year after the UK raised the top tax rate for oil and gas producers to 75 percent in early January by raising the energy profits levy from 25 percent to 35 percent .

Ed Miliband, shadow energy secretary for Britain's opposition Labor party, said Prime Minister Rishi Sunak's government is letting companies like Shell "off the hook" by not increasing taxes more to protect consumers from further hikes in energy bills.

Shell's adjusted earnings for the last three months of the year of $9.8 billion, its second-highest quarterly earnings on record, far exceeded the average analyst estimate of $8 billion.

The record profits mean Wael Sawan, who took over as Shell chief in early January, is taking over the company in good financial shape. But Shell still faces questions about its ability to turn a profit as it gradually transitions to lower-carbon energy.

The renewable energy and energy solutions business, which includes trading in line gas and electricity, contributed less than 5 percent to the group's profit in 2022.

Sawan this week announced a reorganization of its board that will consolidate the company's low-carbon initiatives into a single department led by current Downstream director Huibert Vigeveno.

"I firmly believe that the company is in very good shape and that we are pursuing absolutely the right strategy," Sawan said after the results were announced. However, he also stressed that the world needs a "balanced energy transition", adding that the volatility of 2022 has shown the consequences of "underinvestment" in energy, particularly gas.

Almost two-thirds of Shell's profits in the last three months of the year came from its gas business, which includes the world's largest trade in liquefied natural gas. That division, integrated gas trading, generated an adjusted profit of $6 billion in the fourth quarter as Shell sold 16.8 million tons of LNG, up from 15.7 million tons in the third quarter.

Despite the hydrocarbon-related revenue gains and pressure from activists to invest more in low-carbon technologies, Shell left its investment guidance for 2023 unchanged at $23-$27 billion. "We intend to remain disciplined while delivering compelling shareholder returns," said Sawan.

Shell will pay out $26 billion to shareholders in 2022, including $18 billion in share buybacks. The company announced it would repurchase an additional $4 billion in the first four months of 2023.

Shell made several low-carbon investments in 2022, including the $1.6 billion acquisition of Indian company Sprng Energy. However, the $3.5 billion that Shell spent in total on renewable energy and energy solutions accounted for just 14 percent of the group's total investment of $24.8 billion. In contrast, the company spent $8.1 billion on its upstream oil division and $4.2 billion on its integrated gas division.

"Shell cannot claim to be in transition as long as fossil fuel investments dwarf renewable energy investments," said Mark van Baal, founder of Follow This, a group of active shareholders.

Sinead Gorman, Chief Financial Officer, said investments in renewable energy and energy solutions would remain at similar levels, but added that this does not represent the full extent of Shell's group-wide investments in the energy transition.

Last year, about a third of Shell's $64 billion in operating and capital expenditures went to low- and zero-carbon projects, Gorman said.