The pressure’s on Shell to beat once again

This report is taken from this week’s CNBC UK Stock Exchange newsletter. As you see? You can subscribe Here.

Transfer

It has been just over three years since Wael Sawan was appointed CEO of Shell, replacing Ben van Beurden.

While there has been plenty of background noise, particularly regarding a possible takeover bid for BP, a less emphasized aspect of Sawan’s time at the helm to date is how often the oil giant has beaten expectations on results day.

Shell has reported better-than-expected earnings in five of the last eight quarters; most notably, at the end of October last year, it reported third-quarter earnings of $5.4 billion. — It’s easily ahead of the $5.1 billion predicted by even the most bullish analysts.

This may reflect nothing more than skilled expectation management.

But for a company as widely followed in the market as Shell, meeting expectations – especially to this extent – requires some effort.

He underlines that Sawan has sharpened Shell’s operational performance to a level that is perhaps underappreciated by the market, given the rapid annual decline in the price of oil.

All of this needs to be borne in mind tomorrow when Shell announces results for the fourth quarter of 2025 and the year as a whole.

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

A year-on-year decline of approximately 10% is expected in the fourth quarter; In its trading update last month, Shell said its earnings in the lower segment would be lower, its chemicals arm would report a “significant loss” and results in its energy trading business were expected to be “significantly lower” than in the third quarter.

However, Shell’s crude oil business continues to excite; The company announced last month that production in this quarter would be between 1.84-1.94 million barrels of oil equivalent per day, compared to 1.832 million barrels in the previous quarter. Liquefied natural gas volumes are also expected slightly later in the third quarter.

Return of capital concerns

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

In each of its last two quarterly trading updates, the company announced plans to repurchase $3.5 billion worth of shares; The latest marked the 16th consecutive quarter in which Shell announced buybacks of $3 billion or more.

This is a performance that places Shell as best in class when it comes to capital discipline. Among its competitors, only Exxon Mobil maintained its buyback level despite the decline in crude oil prices; Companies such as BP and Chevron slowed the pace of their buybacks last year in response to market conditions. Therefore, this situation will be closely monitored tomorrow.

Shell’s ability to keep up with this pace of buybacks will be affected by the extent to which it can control costs.

At its capital markets day at the end of March last year, Shell increased its cost reduction target from $2-3 billion by the end of 2025 to a cumulative $5-7 billion by the end of 2028. It also reduced its capital spending target, previously set at £22-25bn a year in June 2023, to $20-22bn between 2025 and 2028.

It would be truly surprising if the company fell short of these goals so soon after setting them; This is another reason to feel relatively optimistic about the possibility of a buyback.

What Sawan says about where Shell allocates capital will be equally interesting. Reuters reported last month that the company Sells Vaca Muerta shale oil and gas assets in Argentina’s Neuquen basinWhere production costs are higher than comparable US assets, potentially raising several billion dollars. Such a move would be in line with Sawan’s gradual reshaping of Shell’s portfolio, which has also seen it divest assets such as an LNG project in Argentina and some renewable energy projects.

However, one of the places in the world that Shell is much more enthusiastic about is Nigeria. Sawan was in the country two weeks ago and met with president Bola Tinubu at his official residence in Abuja.

Here he highlighted Shell’s recent investments in the country, including $5 billion in the Bonga North deepwater project 120 kilometers off the Nigerian coast and $2 billion in HI. [CORR] gas field. He said Shell and its partners were also advancing plans for the nearby Bonga Southwest project, which would be one of the largest energy projects in the world. Up to 20 billion dollars can be invested in this project.

This newfound enthusiasm marks a significant change in Shell’s approach to Nigeria over the past decade.

BP chatter

One topic Sawan would like to avoid is BP. Shell officially ruled out a move on its smaller rival in June last year; The move prevents it from bidding for the next six months under UK takeover rules. This period ended Boxing Day but Shell’s thinking is unlikely to change — The main reason for this was that BP’s share price had risen by 25% since Shell rejected the offer. Seven weeks ago the Financial Times reported that Greg Gut, Shell’s former head of M&A and the chief proponent of the BP takeover, said: left the company before the announcement that there would be no tender.

A question that may be harder to ignore is whether Shell is considering moving its main stock listing to New York. Despite delivering superior financial performance to Chevron over the past two years, Shell has been unable to close the stock market valuation gap with its US rival; This must definitely bother the intensely competitive Sawan.

It wouldn’t be a surprise if this eventually happens — in the process dealt a major blow to the prestige of the City of London.

CNBC’s best TV picks

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

Businesses and governments are likely to cooperate through bilateral “mini-arrangements” in 2026, says Deborah Elms, head of trade policy at the Hinrich Foundation.

you need to know

UK and China rush to make business dealsThere is a diplomatic thaw following Prime Minister Keir Starmer’s visit to China. Despite the failure to reach a comprehensive free trade agreement, companies across various sectors have announced major investments and partnerships aimed at deepening trade ties.

Trump warned it was ‘very dangerous’ for Britain to do business with China. His comments on Thursday follow Starmer’s 4-day visit to China last week; this was the first trip by a British prime minister in eight years. After years of tense relations, China and the UK are seeking to develop a long-term strategic partnership.

Is ‘America First’ starting to backfire as Washington’s allies act alone? Nations and power blocs are forging ties and sidelining a more hostile United States. These include China’s “preliminary agreement” with Canada and its rapprochement with the UK, as well as the EU’s agreements with India and South American countries.

—Holly Ellyatt

quote of the week

In the markets

FTSE100 It rose further last week, rising from 10,154.43 to 10,314.59 on Tuesday. However, Britain’s blue-chip stock index ended Tuesday down 0.26%.

poundMeanwhile, it has fallen against the dollar, with sterling falling to $1.3697 against the dollar on Tuesday from $1.3805 a week ago.

Yields on UK government benchmark 10-year bonds – also known as: gilts – fell slightly to 4.512% from last week’s 4.539%.

—Hugh Leask

is coming

February 5: Bank of England interest rate decision
February 6: Halifax house price index for January
February 10: BRC retail sales data for January