Record profit Shell good for shareholders, but criticism is getting louder

Now that it is known that oil and gas companies jointly saw their profits increase by more than 100 billion euros over the past year , the question arises whether it is fair that companies make so much profit. There is discomfort among MPs and the day before yesterday US President Biden called the American oil company ExxonMobil "pockeagers".

The discussion is not new. Last summer it became clear that companies such as Shell and ExxonMobil have a huge tailwind because of the war in Ukraine. As soon as oil and gas prices skyrocketed due to uncertainty about supplies from Russia, the profits of oil and gas companies also rose. On the other hand, oil companies have lost a large part of their investments in Russia, but that amount is in stark contrast to the extra revenue.

Earlier, outgoing Shell CEO Ben van Beurden said he realizes that the profits are "very significant". He called the high prices a "global phenomenon" that Shell cannot do much about.

Liquid gas

The reason for the rising profits is simple. Oil and gas became scarcer and as a result the raw materials extracted by the oil and gas companies rapidly increased in value. This is clearly reflected in Shell's figures. The unit that extracts gas and trades in liquefied gas (LNG) achieved 176 percent more profit last year, more than 20 billion euros.

The part that extracts oil from the ground, among other things, made a profit of 14.7 billion, or 69 percent more. The part that deals with sustainable energy is doing a lot less. There was a loss of about 1 billion.

windfall tax

In response to the increased profits, Britain introduced a new tax for energy companies: a windfall tax . Oil companies have to pay extra for the profits they make from oil and gas extracted on British soil. The recently inaugurated British Prime Minister Sunak introduced the tax while he was still Minister of Finance.

Net profit of oil companies

The European Union is also working on such a tax. ExxonMobil is making an effort to prevent this and is preparing a lawsuit. According to the oil company, such a levy is counterproductive and will curb investment.

Shell takes into account that the extra tax will have to be paid and has set aside almost 2 billion euros. This leaves enough profit, because that money does not count in the 38.5 billion euros that the company reports as profit today.

A large part of the billion-dollar profit goes to shareholders in the form of dividends. In addition, Shell buys back shares for almost 4 billion euros. This drives up the share price and is therefore good for the current shareholders.

These are incredibly difficult times.

Wael Sawan, CEO of Shell

The new Canadian-Lebanese CEO of Shell, Wael Sawan, understands that people who themselves suffer from the high energy prices are surprised at Shell's record profit. "These are incredibly difficult times. When I go back home to Lebanon, I see what people are going through. Sometimes they are without electricity for a whole day. Those are the kind of challenges we see in many places around the world."

Nevertheless, the new CEO does not think the criticism of Shell is justified, because according to him the company tries to ensure that there is enough energy. “We managed to get 194 LNG shipments to Europe this year to make sure the lights stayed on where they would otherwise have gone off,” said Sawan.

Sustainability

Shell says it invests a third of its profit over the past year in the energy transition. However, the way the company has organized its activities leads to confusion. Shell's chief financial officer, Sinead Gorman, spoke of "low or zero carbon investments" in a telephone press conference today.

It's really a smokescreen to disguise the fact that they invest very little in real renewable energy.

Mark van Baal, founder of Follow This

The activist shareholders of Follow This make mincemeat of the way Shell presents the investments in the energy transition. "It's really a smoke screen to hide the fact that they invest very little in real sustainable energy such as solar panels and wind turbines," says founder Mark van Baal of Follow This. "To disguise the fact that they want to remain a fossil energy company for as long as possible."