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FTSE 100: Shell reveals record profit and launches $6bn share buyback scheme

·Business Reporter, Yahoo Finance UK
·4-min read
Ben van Beurden, chief executive officer of Royal Dutch Shell, speaks during the 26th World Gas Conference in Paris, France, June 2, 2015.    REUTERS/Benoit Tessier
Shell's profits were above the $11bn estimate by analysts in a poll provided by the company, and up from $5.5bn a year earlier and $9.1bn in the first quarter of 2022. Photo: Benoit Tessier/Reuters

Shell (SHEL.L) revealed a $11.5bn (£9.5bn) profit in its latest three months, beating its previous record the quarter before, thanks to surging energy prices.

This was above the $11bn estimate made by analysts in a poll provided by the company, up from $5.5bn a year earlier, and $9.1bn in the first quarter of 2022.

The bumper results came despite Shell previously suffering a £3.1bn hit over its exit from Russia, following the country’s invasion of Ukraine.

The oil and gas giant saw adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of $23.1bn, compared to $19bn the year before, on the back of strong gas and oil trading during the period, and refining margins.

Its refining profit margins almost tripled in the last quarter, to $28 per barrel of oil — this is up from $10 per barrel in the first three months.

However, this was partly offset by lower liquefied natural gas trading results.

Shell announced the start of a $6bn share buyback programme, which will cover an aggregate contract term of approximately three months. It is expected to be completed, subject to market conditions, by the release of the company's third quarter results.

Shares were 1.5% higher after opening in London on Thursday. Shell has gained around 26% in the year-to-date, similar to the price of oil during 2022, which contrasts with a fall of 17% for the FTSE All World index.

“With volatile energy markets and the ongoing need for action to tackle climate change, 2022 continues to present huge challenges for consumers, governments, and companies alike,” Ben van Beurden, chief executive, said.

“Consequently, we are using our financial strength to invest in secure energy supplies which the world needs today, taking real, bold steps to cut carbon emissions, and transforming our company for a low-carbon energy future.

“And, crucially, our powering progress strategy is delivering strong results for our shareholders on the back of years of portfolio high grading, combined with robust operational performance.”

Read more: What are share repurchases?

The board revealed an unchanged interim dividend of $0.25 per ordinary share. Shareholders will be able to elect to receive their dividends in US dollars, euros or pounds sterling.

It distributed a total of $7.4bn to its shareholders in the last quarter.

In the first half of this year, shareholder distributions have doubled from those in the first half of 2013, when Brent prices (BZ=F) were similar, with increased discipline, integrated value delivery and improved resilience driving better results.

Shell also confirmed its plans to spend £25bn on renewables projects in the UK by the end of the decade, despite the recent decision to impose a windfall tax.

Stuart Lamont, investment manager at Brewin Dolphin, said: "The strong oil price backdrop has helped Shell deliver a blockbuster set of results. The dividend may have remained the same, but the share buyback programme is positive news for shareholders."

It comes as gas prices have hit their highest level since the Ukraine war began, with consumers set to bear the brunt as the UK’s energy price cap could hit £3,850 per year in January.

Read more: UK faces power crunch in winter, grid operator warns

Keith Bowman, investment analyst at Interactive Investor said: "In all, concerns about a global recession now overshadow the demand outlook for commodities generally including the price of oil. A UK government windfall tax has been implemented given energy costs hitting consumers hard, while tackling climate change issues remains a pressing need for both the industry and governments globally.

"The recovery in energy prices from the depths of the COVID crisis had already allowed Shell to reduce net debt and begin a renewed focus on shareholder returns. A forecast dividend yield of around 4% is still attractive, despite a relatively recent first cut in the payout since the Second World War.

"On balance and with the wider energy demand/supply outlook still supportive, analyst consensus opinion points towards a firm buy.”

Meanwhile, AJ Bell investment director Russ Mould, said: “The windfall tax is unlikely to make a material difference to Shell as it has a relatively limited footprint in the UK, but as a signal of the direction of travel it could presage more trouble ahead.

“After all, other global governments may look at the pain ordinary people are enduring and conclude the likes of Shell can bear more of the load.

“The risk of demand destruction is also very real, particularly if there is a downturn in the economy, and Shell can’t count on such strong prices remaining in place indefinitely.”

Watch: Why are gas prices rising?

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