The Shell-operated Appomattox deep-water asset

Shell’s earnings sink on lower prices and volumes

Oil major Shell recorded an 87 per cent decrease in its fourth quarter of 2020 adjusted earnings due to lower oil and gas prices and production volumes. Despite these results, Shell has said it will raise its dividend.

The Shell-operated Appomattox deep-water asset. Credit: Photographic Services, Shell International Limited

Shell said in its quarterly report on Thursday that the income attributable to its shareholders amounted to a loss of $4 billion for the fourth quarter of 2020.

This included post-tax impairment charges of $2.7 billion and charges of $1.1 billion mainly due to onerous contract provisions.

In the same period of 2019, Shell’s income amounted to $965 million.

Shell’s adjusted earnings dropped by 87 per cent to $393 million for the fourth quarter of 2020, reflecting lower realised prices for oil and LNG as well as lower production volumes and realised refining margins compared with the fourth quarter of 2019 and adjusted earnings of $2.9 billion.

This was partly offset by lower operating expenses and higher chemicals margins.

Shell’s adjusted earnings for 2020 fell 71 per cent to $4.8 billion, which is, according to Reuters, the lowest since at least 2000.

Shell’s revenues during the fourth quarter of 2020 dropped to $44 billion from $84 billion in the same period of 2019.

During 2020, Shell reduced its bet debt by $4 billion to $75 billion.

The company’s cash capex was reduced to $18 billion in 2020, from $24 billion in 2019, against a target of $20 billion or lower.

Shell CEO, Ben van Beurden, said: “2020 was an extraordinary year. We have taken tough but decisive actions and demonstrated highly resilient operational delivery while caring for our people, customers and communities. We are coming out of 2020 with a stronger balance sheet, ready to accelerate our strategy and make the future of energy.

“We are committed to our progressive dividend policy and expect to grow our US dollar dividend per share by around 4 per cent as of the first quarter of 2021”.

Total dividends distributed to Shell shareholders in the quarter were $1.3 billion.

The board expects that the first quarter 2021 interim dividend will be $0.1735 per share, an increase of about 4 per cent over the US dollar dividend for the fourth quarter of 2020.

Appomattox impairments hit Shell

Shell’s fourth-quarter Upstream segment earnings amounted to a loss of $2.09 billion.

This included a post-tax impairment charge of $1.27 billion mainly related to the partial impairment of the Appomattox asset in the U.S. Gulf of Mexico. This compares to a loss of $855 million in 4Q 2019.

Compared with the fourth quarter of 2019, total production decreased by 14 per cent.

This was mainly due to the impact of more maintenance activities, hurricanes in the US Gulf of Mexico, the impact of divestments, OPEC+ restrictions, and lower production in the NAM joint venture.

New fields and ramp-ups offset the impact of field declines.

Integrated Gas earnings down

The oil major’s fourth-quarter Integrated Gas segment earnings were $20 million, which is a significant decrease compared to earnings of $1.9 billion in the same period of 2019.

Shell said that the 4Q 2020 figure included a net charge of $519 million due to the fair value accounting of commodity derivatives and a charge of $481 million related to onerous contract provisions.

Compared with the fourth quarter of 2019, Shell’s earnings primarily reflected lower realised prices for LNG, oil and gas and lower contributions from trading and optimisation, partly offset by lower operating expenses.

Compared with the fourth quarter 2019, total oil and gas production decreased by 1 per cent mainly due to more maintenance activities and field decline, partly offset by the transfer of the Rashpetco operations in Egypt from the Upstream segment and PSC effects.

Shell explained that the LNG liquefaction volumes decreased mainly as a result of feedgas constraints and maintenance activities.

Volumes reached 8.21 million tonnes in the quarter of 2020 compared to 9.21 million tonnes in 4Q 2019.

LNG sales volumes dropped by 16 per cent to 16.89 million tonnes.