Shell is under pressure to win again

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dispatch

It has been just over three years since Wael Sawan succeeded Ben van Beurden as Shell’s chief executive officer.

While there’s a lot of noise in the background, particularly whispers about a possible takeover bid for BP, a less-noticed aspect of Mr. Sawant’s time at the helm so far is how often the oil major has exceeded expectations on its balance sheet date.

Shell has reported better-than-expected profits in five of the past eight quarters, most notably at the end of October last year when the company reported third-quarter profits of $5.4 billion, comfortably ahead of the $5.1 billion that even the most bullish analysts had expected.

It may just be a reflection of skilled expectation management.

But for a company as widely supported in the market as Shell, it takes effort to exceed expectations, especially at this level.

And given that oil prices have fallen sharply year-on-year, it highlights the extent to which Sawang has improved Shell’s performance to an extent that is perhaps undervalued by the market.

All of this should be kept in mind tomorrow when Shell reports its fourth quarter and full year 2025 results.

With Brent crude oil down nearly 19% compared to 2025, and at one point last month falling below $60 a barrel for the first time in nearly five years, headline earnings in 2025 are likely to fall by about a fifth compared to the past 12 months.

For the fourth quarter, sales are expected to be down approximately 10% year over year. In a trading update last month, Shell said downstream profits were down, its chemicals division was set to report a “significant loss” and its energy trading business’ performance was “expected to be significantly lower” than in the third quarter.

That said, Shell’s upstream operations remain buoyant, with the company last month announcing that production for the quarter would be between 1.84 million and 1.94 million barrels of oil equivalent per day (1.832 million barrels of oil equivalent per day in the previous quarter). Liquefied natural gas volumes are also expected to be slightly higher than in the third quarter.

Concerns about capital returns

But these modest improvements do not allay concerns about the sustainability of Shell’s capital return program.

In each of the past two quarterly trading updates, the company has announced plans to buy back shares worth $3.5 billion, with the most recent quarter marking the 16th consecutive quarter in which Shell has announced buybacks worth $3 billion or more.

This demonstrates Shell’s best-in-class performance in terms of capital discipline. Among its peers, ExxonMobil is the only company to maintain stock buyback levels despite falling oil prices, while companies like BP and Chevron have reduced the pace of share buybacks in the last year in response to market conditions. So this will be watched closely tomorrow.

Shell’s ability to maintain the pace of share buybacks will be affected by the extent to which it can maintain cost control.

At a capital markets day at the end of March last year, Shell raised its cost reduction target from $2 billion to $3 billion by the end of 2025 to a cumulative $5 billion to $7 billion by the end of 2028. The capital investment target, which was set at 22 billion to 25 billion pounds per year in June 2023, has also been lowered to 20 billion to 22 billion dollars between 2025 and 2028.

It would be surprising if the company missed these goals so soon after setting them, which is another reason to be relatively optimistic about its share buyback prospects.

Equally interesting will be what Sawan says about where Shell is putting its capital. Reuters reported last month that the company could sell its Vaca Muerta shale oil and gas assets in Argentina’s Neuquen Basin, where production costs are higher than comparable U.S. assets and could raise billions of dollars. Such a move would be in line with the gradual restructuring of Shell’s portfolio, where Sawan has sold assets such as LNG projects in Argentina and, as has been well-documented, some renewable energy projects.

But one region of the world that Shell is particularly passionate about is Nigeria. Mr Sawan visited the country two weeks ago and met with the president at the Bola Tinubu presidential palace in Abuja.

There, he highlighted Shell’s recent investments in the country, including $5 billion in the Bonga North deepwater project, 120 kilometers off the coast of Nigeria, and $2 billion in the HI gas field. He said Shell and its partners were also planning the nearby Bonga Southwest project, which could cost up to $20 billion and be one of the world’s largest energy projects.

This new enthusiasm marks a significant change from Shell’s recent sentiments towards Nigeria over the past decade or so.

blood pressure chat

One topic Sawant wants to avoid is BP. In June last year, Shell formally ruled out a potential takeover bid for its smaller rival, as under UK takeover rules it would not be able to make a takeover offer for the next six months. That period ended on Boxing Day, but it is unlikely that Shell has changed its mind, as BP’s share price has risen 25% since Shell rejected the takeover bid. The Financial Times reported seven weeks ago that Greg Gatto, Shell’s former head of mergers and acquisitions and the lead proponent of the BP takeover, had left the company before the bid was announced as unsuccessful.

A question that may be difficult to ignore is whether Shell is considering moving its main stock listing to New York. Despite delivering strong financial results for Chevron over the past two years, Shell has been unable to close the gap in stock market valuation with its U.S. rival, which is sure to frustrate the competitive Sawan.

It would not be surprising if this were to happen in the end, dealing a major blow to the prestige of the City of London in the process.

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Astrid Nordin, Lau Chair of China International Relations at King’s College London, said recent visits by Western leaders to China are a boost for China as they demonstrate China’s importance in the global economy, despite US President Donald Trump’s threats of retaliation.

Deborah Elms, head of trade policy at the Hinrich Foundation, said businesses and governments are likely to work together through bilateral “mini-agrees” in 2026.

need to know

Britain and China are rushing to conclude a business deal amid a thaw in diplomatic relations following Prime Minister Keir Starmer’s visit to China. Although no sweeping free trade agreements were reached, companies in several industries announced major investments and alliances aimed at deepening commercial ties.

President Trump warns it is “very dangerous” for Britain to do business with China. His comments on Thursday followed a four-day visit to China last week, the first by a British prime minister in eight years. After years of tension, China and the UK are aiming to build a long-term strategic partnership.

Is “America First” starting to backfire as Washington’s allies act unilaterally? Countries and power blocs are strengthening their ties with a more hostile United States on their side. These include “preliminary agreements” with China and Canada, rapprochement with the UK, and even agreements with the EU with India and South American countries.

— Holly Ellyatt

Quote of the week

at the market

of FTSE100 It has risen over the past week, reaching 10,314.59 on Tuesday, up from 10,154.43 last Wednesday. However, the UK blue-chip index ended trading 0.26% lower on Tuesday.

of lbMeanwhile, the pound fell against the dollar, with the pound trading at $1.3697 against the dollar on Tuesday, down from $1.3805 a week earlier.

The UK government’s benchmark 10-year bond yield — also known as the yield. gold leaf — Slightly lower from 4.539% last week to 4.512%.

— Hugh Leask

very soon

February 5th: Bank of England interest rate decision
February 6: Halifax Home Price Index for January
February 10: January BRC retail sales data