20-F/A: Shell Reaffirms 2024 Financials and Internal Controls Amidst Auditor Independence Reissuance

Shell plc has re-filed its 2024 annual report to include reissued audit opinions from Ernst & Young LLP, confirming the accuracy of its financial statements and the effectiveness of internal controls, despite a decline in revenue and net income.

Summary

• Shell plc filed an Amendment No. 1 to its Form 20-F/A for the fiscal year ended December 31, 2024, to include reissued audit opinions from Ernst & Young LLP (EY) on its Consolidated Financial Statements and effectiveness of internal control over financial reporting.
• EY had initially withdrawn its audit reports dated March 25, 2025, due to an independence impairment related to audit partner rotation requirements, but the re-audit by a different partner did not result in any changes to the Consolidated Financial Statements.
• Revenue for 2024 decreased to $284,312 million from $316,620 million in 2023 and $381,314 million in 2022.
• Income for the period in 2024 was $16,521 million, down from $19,636 million in 2023 and significantly lower than $42,874 million in 2022.
• Income attributable to Shell plc shareholders was $16,094 million in 2024, compared to $19,359 million in 2023 and $42,309 million in 2022.
• Basic earnings per share (EPS) declined to $2.55 in 2024 from $2.88 in 2023 and $5.76 in 2022.
• Cash flow from operating activities slightly increased to $54,687 million in 2024 from $54,191 million in 2023.
• Cash capital expenditure decreased to $21,085 million in 2024 from $24,392 million in 2023.
• Net debt decreased to $38,809 million as of December 31, 2024, from $43,542 million as of December 31, 2023.
• Total impairment losses recognized in 2024 were $4,502 million, primarily in Property, Plant and Equipment ($3,673 million), Goodwill ($510 million), and Other Intangible Assets ($319 million).
• Shell continues to manage its businesses to deliver strong cash flows, with priorities including enhanced shareholder distributions (40%-50% of CFFO through the cycle) and disciplined investment of $20-22 billion annually for 2025-2028.
• The company maintains its target to become a net-zero emissions energy business by 2050, with interim targets including halving Scope 1 and 2 emissions by 2030 (compared to 2016) and reducing net carbon intensity of energy products sold by 15-20% by 2030 (compared to 2016).

Sentiment

Score: 5

Explanation: The re-filing due to an auditor independence issue is a negative, and key financial metrics like revenue and net income declined. However, strong operational cash flow, reduced net debt, continued shareholder distributions, and re-affirmation of internal controls and financial statements provide a balanced, neutral outlook. The underlying business performance, while lower, is still robust.

Positives

• The reissued audit opinions confirm the fair presentation of financial statements and effectiveness of internal controls, addressing previous concerns without changes to the underlying financials.
• Cash flow from operating activities increased slightly to $54,687 million in 2024, demonstrating strong operational cash generation.
• Net debt decreased to $38,809 million by year-end 2024, indicating improved financial leverage.
• Shell maintains a strong investment-grade rating and has access to substantial undrawn credit facilities ($8,000 million committed credit facilities and $20,000 million in commercial paper programs).
• The company continues its commitment to shareholder returns, with 13 consecutive quarters of share buybacks exceeding $3 billion and a progressive dividend policy, including a 4% annual increase announced for Q4 2024.
• Shell is progressing its energy transition strategy, including a 50% reduction target for Scope 1 and 2 emissions by 2030 and near-zero methane emissions by 2030.
• The sale of The Shell Petroleum Development Company of Nigeria Limited (SPDC) was completed, aligning with the strategy to simplify its presence in Nigeria and focus on deep-water and integrated gas positions.

Negatives

• Revenue significantly decreased to $284,312 million in 2024 from $316,620 million in 2023, reflecting a challenging market environment.
• Income for the period and income attributable to Shell plc shareholders both saw substantial declines in 2024 compared to 2023 and 2022.
• Basic and diluted earnings per share (EPS) decreased in 2024, indicating reduced profitability on a per-share basis.
• The company recognized significant impairment losses of $4,502 million in 2024, although lower than the $8,947 million in 2023, indicating ongoing asset value adjustments.
• The auditor's independence impairment, while resolved, highlights a lapse in compliance with SEC rules regarding audit partner rotation.

Risks

• Auditor independence impairment due to non-compliance with SEC rules related to audit partner rotation, requiring reissuance of audit opinions.
• Significant estimation uncertainty in assessing oil and gas reserves, which impacts depreciation, depletion, amortization (DD&A) and impairment testing, especially with the transition to a low-carbon economy.
• Subjectivity in impairment assessments of Property, Plant & Equipment (PP&E) and Joint Ventures and Associates (JVAs) due to reliance on judgmental key assumptions like future commodity prices, refining/petrochemical margins, carbon prices, and asset performance.
• Volatility in commodity prices and refining/chemical margins, which can significantly impact asset recoverability and financial performance.
• Exposure to various legal proceedings, including pesticide litigation, climate change litigation in the USA and Netherlands, disputes related to the Groningen gas field in the Netherlands, and ongoing matters in Kazakhstan and Nigeria, with uncertain outcomes and potential material financial impacts.
• Risk of under-utilised or stranded oil and gas assets due to the energy transition and potential for structurally lower commodity prices in climate change scenarios.
• Uncertainty regarding the development of carbon costs, which depend on evolving policies and the pace of energy transition, potentially leading to higher operational costs.
• Physical risks from acute and chronic climate hazards (e.g., flooding, droughts, severe storms, rising sea levels) that could impact facilities, operations, and supply chains.
• Volatility in defined benefit pension and OPEB plan obligations and assets due to changes in actuarial assumptions and market values, potentially requiring substantial cash contributions.
• Uncertainty in the timing and amount of decommissioning and restoration costs, which can differ from estimates due to changes in laws, technology, and prices.
• Potential for supply contracts to become onerous if activities are closed or terminated early, leading to additional provisions.
• Foreign exchange risk due to operations in various currencies and holding net investments in non-dollar functional operations.
• Market risk from changes in interest rates, foreign exchange rates, or commodity prices affecting asset values, liabilities, or future cash flows.
• Credit risk from counterparties in trading and other business activities, managed through policies but still present.

Future Outlook

Shell aims to become a net-zero emissions energy business by 2050, focusing on delivering more value with less emissions. The company plans disciplined investments of $20-22 billion annually from 2025-2028, with a shift in its Renewables and Energy Solutions strategy towards energy storage, flexible generation, and increased power trading, minimizing new offshore wind investments. The company expects to maximize returns from onshore positions using capital-light business models, debt finance, and partnerships. Shell's financial statements are based on management's best estimates of future economic conditions, including commodity prices and carbon costs, which are subject to significant uncertainty.

Management Comments

• Management believes that the Consolidated Financial Statements covering the referenced periods present fairly, in all material respects, the financial condition, results of operations and cash flows of the Company as of the end of and for the referenced periods.
• Management believes that the Company's internal control over financial reporting was effective as at December 31, 2024.
• Management has stress-tested Shell's most recent financial projections to incorporate a range of potential future outcomes, confirming adequate cash and liquid resources to meet obligations during the going concern period.
• Management's current priorities for applying Shell's cash are balanced capital allocation, enhanced shareholder distributions (40%-50% of CFFO through the cycle), disciplined investment, and maintaining a strong investment grade rating.
• Management believes the outcomes of ongoing legal disputes, including climate change litigation and Nigerian litigation, will be favorable to Shell.

Industry Context

The energy industry is undergoing a significant transition towards a low-carbon economy, driven by climate change concerns and evolving regulations. This transition introduces volatility in commodity prices, demand uncertainty for traditional oil and gas products, and increasing costs associated with carbon emissions. Companies like Shell are adapting by setting net-zero targets, divesting carbon-intensive assets, and investing in renewables and energy solutions, while navigating complex geopolitical landscapes and legal challenges related to climate change and past operations.

Comparison to Industry Standards

• Shell's oil and gas price scenarios are compared against external climate change scenarios such as IHS Markit/ACCS 2024, Woodmac WM AET-1.5 degree, IEA NZE50, and IEA APS, which provide benchmarks for potential future commodity price developments under various decarbonization pathways.
• The company's discount rate for impairment testing is based on a nominal post-tax Weighted Average Cost of Capital (WACC) derived from a peer group of comparable energy companies, ensuring consistency with market practice.
• Refining margin assumptions are evaluated against independent market and consultant forecasts, and the impact of energy transition on demand for oil products and chemicals is considered through IEA scenarios on World Energy Consumption.
• Carbon price assumptions in the Operating Plan are based on country-specific policies and expected abatement technology costs, trending towards $50 to $230 per tonne (RT24) by 2050, which can be compared to external scenarios like IEA NZE50 carbon price outlook.
• The assessment of physical climate risks across Shell's significant assets utilizes IPCC climate modeling data (RCP2.6, RCP4.5, RCP8.5) for time-horizons up to 2050, providing a framework for comparison with industry-wide climate risk assessments.

Corporate Governance

Legal Proceedings

• Approximately nine pesticide litigation cases are pending, with four claims made but not yet filed, and an active subpoena for records, alleging groundwater contamination and seeking actual and punitive damages.
• 31 climate change lawsuits naming Shell as a defendant are pending in the USA, alleging responsibility for climate change impacts due to fossil fuel use.
• In the Netherlands, the Hague Court of Appeal upheld Shell's appeal and dismissed the climate change claim by Milieudefensie, annulling the earlier District Court judgment; Milieudefensie filed an appeal to the Supreme Court on February 11, 2025.
• NAM (a joint venture with ExxonMobil) is involved in arbitrations with the Dutch government to determine its financial liability for costs related to the Groningen gas field earthquakes, with awards expected in March and Summer 2025.
• Shell, ExxonMobil, and the Dutch government are engaged in arbitration regarding the interpretation and implementation of 2018/2019 agreements on the Groningen gas field, expected to take several years.
• One litigation matter in Kazakhstan involves a Shell Notice of Violation (NOV) related to a Sulphur permitting inspection outcome, with an unfavorable ruling issued in February 2024 and an appeal pending at the Kazakhstan Supreme Court.
• Other ongoing disputes in Kazakhstan involve two Shell NOVs under production-sharing contracts.
• Shell and its Nigerian subsidiaries are parties to various environmental, non-environmental, and contractual disputes in Nigeria, the USA, and England, with some judgments rendered against Shell entities.
• Criminal charges alleging official corruption and conspiracy related to OPL 245 in Nigeria were struck out but can be refiled; related civil actions are stayed pending appeals.
• The Dutch Public Prosecutor's office dismissed its investigation into OPL 245 bribery allegations, a decision upheld by the Court of Appeal in The Hague on March 20, 2025.
• On October 2, 2024, the Russian prosecutor filed a Moscow court claim against eight Shell-group entities, seeking declarations of illegal abandonment, monetary relief of approximately $1.5 billion from SEEL for alleged unpaid gas deliveries, and a declaration that Gazprom Export can take $94 billion set aside for Sakhalin equity compensation.

Related Party Transactions

• Sales and charges to joint ventures and associates amounted to $9,652 million in 2024.
• Purchases and charges from joint ventures and associates amounted to $13,076 million in 2024.
• Transactions with one joint venture operating in the oil trading business comprised 19% of sales and 14% of purchases with joint ventures and associates.
• Commitments to make purchases from joint ventures and associates totaled $1,078 million as of December 31, 2024, mainly for LNG processing fees and transportation capacity.
• Commitments to provide debt or equity funding to joint ventures and associates totaled $323 million as of December 31, 2024.

Stakeholder Impact

• Shareholders: Impacted by declining revenue and net income, but supported by continued share buybacks and progressive dividend policy. The re-filing due to auditor issues could affect investor confidence, though the re-affirmation of financials is positive.
• Employees: Affected by changes in pension plans (e.g., Dutch pension reform), and potential impacts from restructuring or divestments (e.g., SPDC sale).
• Customers: Changes in segment structure (Wholesale Commercial Fuels to Marketing) and strategic shifts in Renewables and Energy Solutions may alter product and service offerings.
• Suppliers: Operational changes and divestments, such as the SPDC sale, could impact existing supplier relationships.
• Creditors: Financial stability is supported by strong cash flows, reduced net debt, and maintained investment-grade ratings, providing assurance to creditors.
• Regulatory Authorities: The SEC's auditor independence rules were a direct point of compliance failure, leading to the re-filing. Ongoing legal proceedings involve various governmental and regulatory bodies.

Next Steps

• The EMTN programme will be renewed during 2025.
• Arbitral awards in the Groningen strengthening and damages arbitrations are expected in March and Summer 2025, respectively.
• The arbitration regarding the interpretation and implementation of the 2018/2019 agreements with the Dutch government on the Groningen gas field is expected to take several years.
• The Kazakhstan Supreme Court appeal regarding a Sulphur permitting inspection outcome is pending.
• The Moscow court proceedings regarding the Russian prosecutor's claim against Shell-group entities are scheduled for April 14, 2025.
• The company will continue to monitor and assess the future exposure of its assets to changing climatic conditions to establish the need for any further adaptation actions.
• From January 1, 2025, segment earnings will be presented on an Adjusted Earnings basis.
• The most senior leadership structure will be delayered with effect from April 1, 2025.
• The Dutch defined benefit pension plan is expected to be transferred into a new defined contribution plan from January 1, 2027, subject to formal acceptance by the Trustee Board in 2025.
• The defined contribution plan of Shell in the Netherlands will be transformed on January 1, 2026.
• The company will hold its Annual General Meeting in 2025, where the Board's authority to allot and repurchase shares will expire unless renewed.

Key Dates

Keywords

Shell, SEC filing, 20-F/A, Annual Report, Financial Results, Audit Opinion, Internal Controls, Energy Transition, Climate Targets, Oil and Gas, Impairment, Revenue, Net Income, EPS, Cash Flow, Net Debt, Share Buybacks, Dividends, Legal Proceedings, Environmental Compliance, Corporate Governance, Risk Management