Shell and BP face tough job of keeping customers and investors happy as profits roll in
The bosses of Shell and BP face the same task as they prepare to present their companies’ annual results this week, but at completely different points in their tenures. Wael Sawan will make his City debut after taking over as Shell chief executive at the start of the year. Bernard Looney marks three years since a watershed presentation in London when he took over at BP, unveiling a target to hit net zero by 2050 or sooner.
The pair now each have the task of convincing the public they are not profiteering during the energy crisis – while keeping investors sweet. Profits surged in 2022 on the back of high gas prices caused by the invasion of Ukraine, and are expected to stay high against historical averages this year, while oil prices have climbed in early 2023 as the Chinese economy reopens.
Sawan will take his bow first, on Thursday, as he fronts Shell’s first full-year results since completing the relocation of its headquarters to London – where the business began as an importer of oriental seashells in the 1830s. He’s wasted little time since taking the role, having put Shell’s Europe home energy supply businesses under review. Shell’s figures will be suitably eye-watering: adjusted annual profits are expected to come in around $83bn (£67bn) against $55bn a year ago, including around $19bn in the final quarter of the year, against $16.3bn in the same period of 2021.
The firm’s prized dividend – which was cut during the Covid crisis for the first time since the second world war – has been lifted by 15%. Shell is spending $18.5bn buying back its own shares this year, a statistic that has only increased the calls for the firm to allocate more of its cash pile towards renewable energy and less to rewarding shareholders. This year’s capital investment is expected to come in at between $23bn and $27bn, but renewables will make up a relatively small proportion of this.
If Sawan chooses to change this narrative and ramp up the company’s green spending, he will be following in Looney’s footsteps. In February 2020, the Irishman said the company had to change to ensure a “rapid transition to net zero”, talking grandly about “reimagining energy for people and our planet”. In the three years since, much of Looney’s focus has been on navigating the pandemic, slashing 10,000 jobs in response.
He has come under pressure from green groups pushing for BP to decarbonise more quickly, and from investors – some of which argue he needs to slow the transition to protect profits. The Guardian reported last month that BP plans to spend as much as double the amount on oil and gas projects as it will on renewable investments in 2023. Looney is also facing calls to show progress in the sell-off of its stake in Russia’s Rosneft.
BP, which reports on 7 February, is expected to reveal fourth-quarter underlying profits of about $5bn. That would represent a slowdown from the $8.2bn recorded in the previous three months, but still outstrips the $4.1bn it made in the same quarter a year earlier.
The BP and Shell updates come during an oil and gas earnings season in which France’s Total and American behemoths Chevron and Exxon will also update the market, with the five western oil giants expected to have raked in a huge $200bn in annual profits combined. This profit pot is expected to moderate to $150bn this year, will still be well above historical trends.
The figures will doubtless reignite calls for Britain’s windfall tax on North Sea oil and gas operators to be further strengthened. Shell said this month that it expected to take a hit of about £1.7bn to earnings for the final quarter of 2022 as a result of windfall taxes in the UK and EU. BP said in early November that it expected to pay about $2.5bn in tax on its North Sea business this year, including $800m from the windfall levy. However, the chancellor, Jeremy Hunt, later raised the rate of the tax from 1 January.
“Let’s not forget that these companies are richer because the rest of us are poorer,” said Alice Harrison of campaign group Global Witness. “Brits should be asking themselves whose side their government is on – those of us living in cold, draughty homes or an industry that’s riding the wave of the energy crisis and returning billions to its shareholders?
“The UK needs a proper windfall tax on the profits of big polluters that isn’t undercut by tax relief and other subsidies for oil and gas companies.”
CMC Markets analyst Michael Hewson says the profits will “trigger the usual tired political carping when it comes to ‘obscene’ profiteering”, arguing that higher prices for oil and gas will persist if firms are not incentivised properly to develop newer sources of supply.
However, he adds: “Oil companies don’t help themselves when they take the decision to continue to buy back billions of dollars in their own shares, rather than increase the amount of investment in renewable sources of energy.”