Shell's ability to return cash to shareholders in focus as it reports results

26 January 2024 , 12:58

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Shell's annual adjusted earnings are predicted to hit £21.08 billion (Image: PA Wire/PA Images)

Shareholders are eagerly waiting to see if Shell can keep the cash flowing, which could hint at the company's ability to give money back to them.

The oil giant is set to reveal its full-year results on Thursday, with experts predicting its annual adjusted earnings to reach a whopping £21.08 billion. This would mean that Shell earned around £4.75 billion in the last quarter of the year, a drop of just under 40% compared to the same time last year.

Analysts have expressed concerns about Shell's ability to maintain its current level of buybacks due to a poor outlook for its cash flow from operations. Derren Nathan, head of equity research at Hargreaves Lansdown, said there's a "growing competition for funds" in Shell between those who want to return money to shareholders and those who want to invest in renewable energy.

He said that investors aren't expecting to see a dip in oil and gas production in Shell's fourth quarter numbers next week. However, he warned that lower refinery use and weaker commodities prices could potentially dent cash flows.

He said: "Volatile pricing is part and parcel of being an energy company. However, an increased commitment to shareholder distributions and significant investment plans in both traditional and renewable energy means that there's growing competition for funds."

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"Meanwhile, there's been mounting pressure for Shell to double down on its renewable commitments. So, investors will be keeping a close eye on Shell's plans to allocate its cash in 2024."

Politicians and campaigners are keen to see if Shell will invest more money into its environmental goals. It's been four years since Shell announced its aim to be "net zero" by the middle of the century, matching the UK Government's goal.

But last July, Shell dropped one of its green promises - to reduce oil production by 1% to 2% each year until the end of the decade. Shell claimed it was dropping this promise because it had already been met. By selling some oil and gas fields, the company's production was already lower than it would have been in 2030 under the old plan, it said.

Critics argued that the buyers of these oil and gas fields would still extract the oil and sell it to be burnt, so while Shell's carbon footprint might be smaller as a result, global emissions won't change.

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Lawrence Matheson