Shell, Europe’s largest oil company reported stronger than expected second quarter results Thursday with $11.5 billion second-quarter profit smashing the mark it set only last quarter. Surging natural gas and oil prices and refining margins that roughly tripled in the second quarter, to $28 per barrel, the company said. The Oil Major reversed $4.3 billion in impairments it took early in the Covid-19 pandemic. Shell shares rose 1.8% in morning trading in London.
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
$0.84 Missed Expected $1.23 EPS But $90.5B Beat $84.1 Billion Revenue Forecast
Earnings
Shell’s second-quarter profit on a net current-cost-of-supplies basis, (comparable the net income that U.S. oil companies report) was $16.7 billion, compared with $2.7 billion in the year-ago period. Adjusted earnings, stripping out certain commodity-price adjustments and one-time charges was $11.5 billion, beating analysts’ consensus forecast for the quarter.
Exxon and Chevron Corp. are also expected to report another extremely profitable quarter on Friday, with BP set to announce results next week.
Production
Shell increased overall oil and gas production by 5% in the quarter compared with the first three months of the year. Refining margins roughly tripled in the second quarter, to $28 per barrel, the company said.
Shell said its production of liquefied natural gas, decreased by about 4% in the second quarter mainly because of the loss of volumes from the Russia development. Shell’s LNG liquefaction volumes stood at 7.66 million tonnes in the second quarter, down from 8 million in the previous three months. Volumes are expected to fall to between 6.9 million and 7.5 million tonnes in the third quarter because of strikes at its Australian Prelude site and planned maintenance.
Dividends and Buybacks
Shell’s kept its quarterly dividend unchanged at 25 cents a share. Shell bought back $8.5 billion of shares in the first half of 2022 and the new programme is significantly higher than forecast. Shell said it would buy back another $6 billion in shares by its third-quarter results, on top of $8.5 billion in buybacks in the first half, while also reducing its net debt.
The latest payout increase suggests the company could return $30 billion to shareholders this year, or greater than 15% of its market value, RBC Capital Markets analyst Biraj Borkhataria wrote in a Thursday research note.
Norwegian oil major Equinor ASA and TotalEnergies SE of France also have extended big returns for shareholders as their profits have soared. French rival TotalEnergies also reported Thursday with a record profit of $9.8 billion for the quarter and accelerated its buyback programme. Norway’s Equinor raised its special dividend and boosted share buybacks on Wednesday.
Debt
The surge in cash generation was used to further reduce Shell’s debt, which stood at $46.4 billion at the end of June, down from $48.5 billion three months earlier. Its debt-to-capitalization ratio, or gearing, declined to 19.3%.
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
Shell Chief Executive Ben van Beurden on Thursday said the company is investing to fill the world’s energy needs while markets “present huge challenges for consumers, governments, and companies alike.”
Shell said its refinery utilization would increase to 90-98% in the third quarter, compared with 84% in the second quarter.
Shell has already reduced by 40% or more its natural-gas input to refineries and chemical plants in the Netherlands and Germany, Mr. van Beurden said Thursday. 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. “So, in other words, it is self-help,” he said.
About Shell
The record 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.
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 its 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. These results clearly show the effect when that doesn’t happen.
Source: Royal Dutch Shell
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