Shell’s profit slumps in 2020 due to COVID pandemic

Royal Dutch Shell’s profit last year dropped to its lowest in at least 20 years as the coronavirus pandemic hit energy demand worldwide, though the company’s retail network and trading business helped cushion the blow.

The Anglo-Dutch oil major’s annual profit slumped 71 percent to $4.8bn as its oil and gas production and profits from refining crude into fuels dropped sharply.

In a sign of confidence, however, Shell said it planned to raise its dividend in the first quarter of 2021, which would be the second slight increase since it slashed its payout by two-thirds at the start of last year due to the pandemic.

Analysts say while Shell missed forecasts for both its fourth-quarter profit and cash flow, the results overall were not as bad as feared, especially after rival British BP posted a loss of $5.7bn earlier this week.

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

Shell shares were little changed at 09:15 GMT, slightly underperforming the broader European energy index.

Shares in Shell collapsed in 2020 along with rivals to hit 878.1 pence on October 28, their lowest in more than a quarter of a century. They have recovered since but are still down 40 percent since the end of 2019, before COVID-19 savaged oil markets.

US 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 it’s first in 10 years while Exxon reported a massive $22.4bn annual loss, its first as a public company.

Low carbon strategy

Shell’s results come a 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 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 $2-2.5bn by 2022, above and beyond cuts of $3-4bn 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 $17.8bn in new projects in 2020, about $6bn less than a year earlier, and slashed its operating costs by one percent to $32.5bn, 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 $4.6bn.

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.