Neither rocket scientists nor quantum mathematicians aren’t needed in the analysis of the oil sector.
ExxonMobil last night reported its highest profit since 2014 (the last time oil prices were as high as they are today) and it is very likely Shell PLC's (LSE:SHEL, NYSE:SHEL, EURONEXT:SHELL) numbers will be similar.
As Brent crude today trades above US$90 per barrel its impossible to look past revenue and profit numbers from oil sales, even if the company’s preferred corporate narrative is more focussed on energy transition.
Shell will appear as a company transformed on Thursday, according to Allegra Dawes, senior analyst at Third Bridge, but, bigger changes could come in the future.
“Surging energy prices and a series of divestitures have left the company flush with cash,” Dawes said.
"The dilemma facing Shell is similar to its peers: how to manage the energy transition when the world’s energy needs are growing today.
“Third Bridge experts see the merits in splitting the company to meet targeted greenhouse gas emissions goals. However, the cost of investing in renewable energy may be prohibitive as a company that is independent of the legacy oil & gas business.”
Shell’s management team face critical investment and capital allocation decisions, she added,
“Shareholder activism has emerged as a key theme in the major integrated oil space, and Shell finds itself front-and-centre in the debate.
“In several aspects renewable energy has disappointed over the past year, but at the same time demand for fossil fuels has increased, driving energy prices higher as the world recovers from the pandemic. The timing over which the energy transition occurs is still uncertain.”
Many stakeholders will be keen for insight into the renewables and transition efforts, but, it may be difficult for the oil major to avoid appearing mealy mouthed when it comes to energy transition and ‘net zero’ amidst an embarrassment of cash.
Today, Brent crude stands at US$90 per barrel and in some quarters it is forecast to see US$100 again in the near future.
Shell will have enjoyed a 60% surge in oil sale prices over the past twelve months, as a result City analyst consensus points to Shell making a profit of around US$21bn versus US$4.8bn last year.
For Q4 alone, profit is seen coming in at US$8.8bn versus US$393mln in the same period a year ago.
Meanwhile, cash flow amounted to some US$6bn in the months between July and September - and oil prices are higher still since then.
What will Shell do with all that wonga, one might wonder.
It's becoming a conundrum as management attempts to tread an ESG tightrope, manage PR during a fuel price crisis and deliver as money as possible to shareholders.