Shell's profits: What the record earnings reveal

Julian Vance here, cutting through the noise. Shell just dropped its latest numbers, and the headlines are doing their usual dance about "strong results" and record production. Digging into the financials, though, reveals a more nuanced, and frankly, a more predictable story about how a company like Shell actually operates in this market. It’s a masterclass in leveraging operational wins to fuel a very specific kind of financial engineering.

The Numbers Game: Strong Results, Strategic Context

Shell’s year-to-date profits have cleared a hefty $43 billion. That’s a number that certainly turns heads, and it’s largely propelled by what they’re calling "excellent performance" in their deepwater assets. We’re talking about production hitting a 20-year high in the Gulf of Mexico and setting new records in Brazil (Shell’s profits pass $43bn after production hits new highs in Brazil and Gulf of Mexico). The Whale platform, a key project, is reportedly gushing more oil and gas than initially projected, and in half the time. That’s undeniably efficient execution.

For the third quarter specifically, Shell reported $5.4 billion in earnings. That’s a 27% jump from the previous three-month period—or, to be more exact, an increase from $4.3 billion to $5.4 billion. Pretty solid, right? But here’s where the context becomes critical: that Q3 number is actually lower than the $6 billion they pulled in during the same period last year. And the company itself is on track to report lower annual profits this year compared to 2024. Why? Lower global oil and gas prices. The average price last quarter was around $69 a barrel, a notable dip from over $80 a barrel a year ago, and a far cry from the $100+ peaks we saw after the Ukraine invasion.

So, when CEO Wael Sawan talks about "strong delivery" and "one of the strongest balance sheets in the industry," he's not wrong on the operational front, but the overarching financial narrative needs a closer look. The real story isn't just about how much oil they're pulling out of the ground; it's about what they're doing with the cash flow, especially when market prices aren't always playing ball. It’s like a high-stakes poker player who keeps winning hands, even when the pot isn’t as big as it used to be, because they’re playing a long game with their chips.

And this is the part of the report that I find genuinely puzzling: the relentless focus on shareholder returns via buybacks. Shell announced another $3.5 billion in buybacks for the next three months, marking their 16th consecutive quarter of doing so. They’re aiming to return 40% to 50% of cash flow to investors. My analysis suggests they’re on track to have repurchased roughly a quarter of their shares over the last four years. This isn't just returning capital; it's a systematic reduction in the share count, which mechanically boosts earnings per share. It's a highly effective, if somewhat financially conservative, way to juice shareholder value, particularly when major new capital expenditures might face higher risk or lower returns in a volatile market. It makes you wonder: given the narrative of operational strength, what kind of innovative, future-proof investments might those billions be funding instead?

The UK Levy: A Predictable Playbook

Then there’s the whole saga with the UK’s energy profits levy—the "windfall tax." Shell shelled out $509 million (or £387 million, if you prefer the local currency) in tax for the first nine months of the year due to this levy. This tax was a direct response to those $100+ barrel prices, designed to claw back some of the "unearned" profits. It was supposed to run until 2030.

Now, suddenly, there’s talk from the UK Treasury, specifically from Rachel Reeves, about potentially scrapping it sooner, perhaps by March 2029. The catch? Assurances from oil and gas companies about greater jobs and investment. CEO Wael Sawan, predictably, voiced his "hope" for an improved fiscal environment and emphasized the company’s value for a "predictable and a progressive tax system."

Let’s be clear: "predictable and progressive" in this context is corporate speak for "lower taxes, please." It’s a classic move. Companies lobby aggressively against taxes they dislike, often citing "uncertainty" or the need for a "stable environment" for investment. Yet, the data shows that even with the levy in place, Shell is pouring billions into share buybacks, not necessarily into massive new UK-specific projects beyond what’s already committed. The protests outside Shell’s London headquarters this week, with activists from Fossil Free London staging an "early Halloween campaign" against these "horror show" profits, underscore the public’s perception of this dynamic. You could almost hear the chants of "trick or trick" echoing off the glass facades of the corporate tower.

It’s a strategic negotiation. The government wants jobs and investment, and the companies want tax breaks. The question that always lingers is: what constitutes a meaningful "assurance"? How do you quantify and enforce promises of future employment and capital expenditure, especially when the global market for oil and gas is, by its very nature, unpredictable? The Treasury’s move feels less like a firm demand and more like an open invitation for industry to make a compelling enough case for tax relief, with the underlying assumption being that any tax burden is a disincentive, regardless of the profit margins.

The Shareholder's Horizon: A Tight Focus

Shell’s latest report paints a picture of a company with immense operational efficiency in its core business, particularly in deepwater extraction. But the true genius, from a purely financial perspective, lies in how those operational successes are translated into shareholder value. It's not just about the volume of oil, but the strategic management of capital. The relentless stream of share buybacks, even as annual profits are projected to dip due to market prices, speaks volumes. It suggests a corporate strategy tightly focused on optimizing shareholder returns in the immediate to medium term, often by reducing the share count. The lobbying for tax predictability, which invariably means lower taxes, fits perfectly into this framework. It's a self-reinforcing cycle designed to keep the financial machinery humming for investors, regardless of the wider economic or environmental currents.

The Buyback Bonanza: A Financial Funnel

Shell's consistent, multi-billion dollar share buybacks aren't just a footnote; they are the engine driving a significant portion of shareholder value. While the company touts its operational prowess in Brazil and the Gulf of Mexico, these buybacks act as a powerful, direct funnel for capital back to investors, regardless of broader market sentiment or the price of crude. It’s a clear signal: maximizing returns to equity holders is paramount. The narrative of "strong results" is compelling, but the underlying mechanism for generating that strength for shareholders is often a sophisticated dance of financial engineering.