Shell profit slumps 71% to $4.8 bn in 2020

Shell LNG

Royal Dutch Shell said its annual profit slumped 71 percent to $4.8 billion as its oil and gas production and profits from refining crude into fuels dropped sharply.

Rival British BP posted a loss of $5.7 billion earlier this week, Reuters reported.

“We are coming out of 2020 with a stronger balance sheet,” Chief Executive Ben van Beurden said in a statement.

“Earnings were below consensus and cash flow too, but that hides the fact that expectations were low after what BP reported on Tuesday,” Jefferies analyst Giacomo Romeo said.

U.S. rivals Exxon Mobil and Chevron reported huge losses in 2020, battered by the prolonged slump in energy demand during pandemic lockdowns. BP’s loss was its first in a decade while Exxon reported a massive $22.4 billion annual loss, its first as a public company.

Shell’s results come week before it presents its long-term strategy to become a net zero emissions company by the middle of the century and tries to persuade investors that it has a profitable future in a low-carbon world.

It is planning a major restructuring as part of its plan to reduce greenhouse gas emissions and aims to cut 9,000 jobs, or more than 10 percent of its workforce.

The reorganisation will lead to additional annual savings of about $2 billion to $2.5 billion by 2022, above and beyond cuts of $3 to $4 billion announced last year.

Like its rivals, Shell responded to the unprecedented drop in oil and gas demand last year by cutting spending sharply.

Shell invested $17.8 billion in new projects in 2020, about $6 billion less than a year earlier, and slashed its operating costs by 12 percent to $32.5 billion, helping its cash flow.

Reducing costs is vital for Shell’s plans to move into the crowded power sector and renewable energy where margins are typically lower than for fossil fuels.

It is betting on its expertise in power trading and rapid growth in hydrogen and biofuels markets as it shifts away from oil, rather than joining rivals in a scramble for renewable power assets.

Despite a 28 percent drop in fuel sales last year, Shell’s adjusted earnings from trading and marketing, which includes sales at its global network of more than 45,000 filling stations, only fell 3 percent from a year earlier to $4.6 billion.

But at the same time, Shell’s cash flow was down nearly a fifth from 2019 while its debt-to-equity ratio rose to 32 percent from 29 percent, exceeding the company’s target.

Shell’s fourth-quarter profit fell 87 percent from a year earlier to $393 million – missing analyst forecasts for a profit of $597 million – dragged down by weak liquefied natural gas prices, lower production and weak refining margins.

Shell’s net debt at the end of the fourth quarter rose about $2 billion on the previous quarter to $75.4 billion, with its gearing – or debt-to-equity ratio – ticking up to 32.3 percent.

Shell cut the value of its oil and gas assets by a further $2.7 billion after writing them down by $17.8 billion last year following the lowering of its energy price outlook.