Shell 3Q Earnings $9.45 billion, Lower on Refining and Trading Revenues

Shell, Europe’s largest oil company reported stronger than expected third quarter results Thursday that fell 18% to $9.45 billion for the period, beating market expectations of $9.0 billion but down from $11.47 billion the prior quarter. $SHEL cited lower trading and margins and higher expenses. The oil major announced a $4 billion share-buyback program and kept its quarterly dividend upping shareholder returns.

shell2

The company’s decision to keep its quarterly dividend unchanged at 25 cents a share disappointing some investors. Shell said it would buy back another $6 billion in shares by its third-quarter results while also reducing its net debt.

Shell (NYSE: $SHEL) Reported Earnings Before Open Thursday

Earnings Q3 2022

  • Net income $6.74 billion compared with $18.04 billion in the second quarter
  • Included net losses of $1.0 billion due to the fair value accounting of commodity derivatives and $0.4 billion in impairment charges, swinging from a $5.2 billion net profit for the second quarter.
  • EBITA $21.51 billion, down from $23.15 billion in the second quarter and above market expectations of $20.72 billion, provided by Vara and based on 21 analysts’ estimates.
  • Shell said overall oil and gas production fell by 5% to 2.77 million oil-equivalent barrels a day in the quarter compared with the last three months.

Exxon and Chevron Corp. are also expected to report another extremely profitable quarter on Friday, with BP set to announce results next week.

Stock Market Reaction

  • Shell Plc – ADR (Representing)
  • NYSE: SHEL 56.01 +2.7 (+5.07%) As of October 27, 2022, 3:00 PM CDT

The huge earnings and increase in shareholder returns is a long way from April 2020 when Shell cut its dividend for the first time in 80 years. Two months later it wrote down the value of its assets by as much as $22 billion and swung to a historic loss.

Segments

Upstream:

  • Profit of $5.9 billion (excluding items) during the quarter, up from $1.7 billion (adjusted) in the year-ago period. This primarily reflects the impact of higher oil and gas prices, partly offset by lower volumes.
  • At $93.02 per barrel, the group’s worldwide realized liquids prices were 38.6% above the year-earlier levels, while natural gas prices almost tripled.
  • Shell’s upstream volumes averaged 1,789 thousand oil-equivalent barrels per day (MBOE/d), down 11.9% from the year-ago period, mainly due to the loss of contribution from the company’s Salym petroleum development in Russia.
  • Liquids production totaled 1,273 thousand barrels per day (down 14.8% year over year) and natural gas output came in at 2,995 million standard cubic feet per day (down 3.5%).

Chemicals and Products:

  • Adjusted income of $772 million, 62.5% higher than the year-ago period. T
  • Due to strong refining margins, robust trading contribution and lower depreciation charges, which offset lower chemicals profitability.
  • Refinery utilization came in at 70%, down marginally from 71% during the September-end quarter of 2021.

Integrated Gas:

  • Adjusted income of $2.3 billion, up from $1.8 billion in the July-September quarter of 2021.
  • Results were primarily impacted by higher LNG sales volumes, which increased 3.2% from the third quarter of 2021 to 15.66 million tons.
  • Total Integrated Gas production fell 6.6% year over year to 924 MBOE/d.

Marketing:

Income of $820 million (excluding items) during the quarter compared to the year-ago earnings of $1.1 billion due to a dip in lubricants margins.

Renewables and Energy Solutions:

  • Adjusted income of $383 million, turning around from the year-ago loss of $171 million.
  • The performance boost reflects higher trading and optimization margins for gas and power.
  • External power sales were up 4.7% year over year to 67 terawatt hours, though piped gas sales fell 18.2% to 157 terawatt hours.

Dividends and Buybacks

Shell kept its quarterly dividend unchanged at 25 cents a share.

The company also said it will hold a share buyback program, to reduce its share capital. Shell repurchased $5 billion of shares in the third quarter. The energy group also announced that it completed the $6 billion buyback program scheduled for the third quarter of 2022. SHEL expects another $4 billion of repurchases for the fourth quarter.

All shares repurchased across both the London and Netherlands exchanges will be cancelled. The program is expected to complete within three months.

Debt and Cash

As of Sep 30, 2022, Shell had $36 billion in cash and $82 billion in debt (including short-term debt). Net debt-to-capitalization was approximately 20.3%, down from 25.6% a year ago.

During the quarter Shell generated cash flow from operations of $12.5 billion, returned $1.8 billion to its shareholders through dividends and spent $5.3 billion on capital projects.

The company’s cash flow from operations decreased 21.8% from the year-earlier level. Meanwhile, the group pulled in $7.5 billion in free cash flow during the third quarter compared to $12.2 billion a year ago.

Russian Charge

In May Shell took a $3.9 billion post tax charge related to its exit from Russia holdings. This was primarily on Shell’s share in a Russian natural-gas development. Shell said Thursday its production of liquefied natural gas, of which it is a major global supplier, decreased by about 4% in the second quarter mainly because of the loss of volumes from the Russia development.

The CEO said Shell is still evaluating Moscow’s move on July 1 to take control of the international consortium behind the giant Sakhalin-2 oil-and-gas project in Russia’s Far East, in which the company is an investor. The Kremlin’s move restricts Shell’s options, Mr. van Beurden said. “It’s highly unlikely that we will buy into a Russian entity,” he said.

Shell also said it had received a $165 million dividend payment in April from the Russian Sakhalin-2 oil and gas joint venture that it intends to exit.

Outlook

The oil-products business is expected to deliver sales volumes of 2.25 million-2.75 million barrels a day, with refinery utilization of 88%-96%. Chemicals division, fourth-quarter plant utilization is expected at 72%-80%, and sales volumes at 2.70 million-3.20 million tons.

Shell last quarter already reduced by 40% or more its natural-gas input to refineries and chemical plants in the Netherlands and Germany. However, he said the cuts hadn’t affected output because Shell is able to repurpose gas that results from its own processes using oil and converting that to fire furnaces.

What Analysts Watch

Analysts will be looking for updates on segments such as BG Group Plcs oil projects in Brazil and LNG in Australia. With the BGG price tag excessive being bought at the oil price peak it and impact on Shell borrowing’s, cost cutting, and it sell off of assets and followed by cutting spending it is always at the top of the list. 

Updates on the Forties pipeline in the North Sea and the Enchilada platform in the Gulf of Mexico (50-60,000 boepd) are ongoing updates.  Look to see if any upstream decline is offset by the two new fields, Gorgon and Schiehallion, and expansion in Brazil.

Earnings are expected to benefit from rising LNG contract prices, stronger ‘spot’ markets and trading activity.

About Shell

Source: Royal Dutch Shell

Live From The Pit