Shell: Strong Q4 on Integrated Gas Rebound; Attractive on Valuation, Payouts, and Capital Discipline

Shell reported fourth-quarter results that exceeded market expectations as well as third-quarter levels. Thanks to high oil and natural gas prices during the quarter that offset lower volumes, adjusted earnings increased to $9.8 billion from $6.4 billion a year ago. Adjusted earnings exclude $4.2 billion of gains due to fair value accounting of commodity derivatives and $1.9 billion in charges related to windfall taxes in the EU and U.K. Earnings were higher compared with the third quarter because of a rebound in integrated gas results from stronger trading and optimization results that offset the impact of lower prices on the upstream segment. This segment continues to be differentiating for Shell and an advantage in today’s volatile gas markets. For the year, total production volumes fell 12% on maintenance, divestments, loss of Sakhalin volumes, and production sharing contract effects. Operating cash flow before working capital increased slightly to $12.0 billion from $11.1 billion last year, while a large release of working capital resulted in organic free cash flow of $16.2 billion.