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Shell beats expectations amid rising oil price

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August Graham, PA City Reporter
·4-min read
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A nearly 50% rise in the price of oil since the end of last year has benefited Shell, as the producer pumped out millions of barrels every day, beating earnings expectations.

The company’s adjusted earnings hit 3.2 billion dollars (£2.3 billion) over the first three months of 2021, up 13% on the year before and surpassing the 3.1 billion dollars (£2.2 billion) that analysts had forecast.

The rise from this time last year came despite a fall in production from more than 3.7 million barrels of oil equivalent, a measure which includes gas production as well, to 3.5 million in the most recent quarter.

But each barrel of oil that the company was selling fetched an average of 55.74 dollars (£40) over the period, up 20% from a year ago, and by almost half from the closing month of 2020.

Gas prices are also up significantly, Shell said.

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Current cost of supply earnings attributable to shareholders rose 58% to 4.3 billion dollars (£3.1 billion) in the quarter.

Income attributable to shareholders hit 5.7 billion dollars (£4.1 billion), compared with a loss of 24 million dollars (£17.3 million) last year.

Chief executive Ben van Beurden said: “Shell has made a strong start to 2021, generating over eight billion dollars of cash in the quarter.

“Our integrated business model is ideally positioned to benefit from recovering demand.”

However, despite stronger-than-expected results, Mr van Beurden was not able to claim victory in his battle against Shell’s debt as rival BP did earlier this week.

BP pushed down debt to below its 35 billion dollar (£25.2 billion) target, thanks to money it made by selling parts of the business.

Shell is still some way off its 65 billion dollar (£25.2 billion) debt target, but managed to reduce net debt by four billion dollars (£2.9 billion) to 71.3 billion dollars (£53.3 billion).

When it hits this target, Shell said it will increase the amount of money it distributes to shareholders.

Freetrade analyst David Kimberley said: “Despite these positives, it’s unlikely we’ll see the group’s share price hitting its pre-pandemic highs in the near future.

“For whatever reason, the coronavirus has managed to make investors laser-focused on renewables and sustainability.

“Mix in a growing reverence for ESG and the result is Shell, BP and the other oil majors are starting to feel a bit like tobacco stocks — they pay out a decent dividend but don’t feel sustainable in the long run.

“The next couple of years will show how fair an analysis that really is.

“As much hype as there has been around green energy over the past year, the reality seems to be hydrocarbons are going to be powering much of the planet for a long time to come.”

Shell’s shares rose 2% on Thursday morning following the results announcement; however the company – like rival BP – is still lagging behind its pre-pandemic levels and international peers.

Both London-listed oil majors have shares worth 38% less than they were on January 10 last year. Meanwhile, Total has dropped just 17%, ExxonMobil 17% and Chevron 10% over the same period.

On a call with reporters, chief financial officer Jessica Uhl said the first cut to Shell’s dividend since the Second World War will not have helped the share price.

She added that investors are taking time to assess the company’s ambitions to reduce its reliance on polluting energy.

“The sector is in transition as much as the energy system is in transition,” she said.

“I think the markets are still learning and figuring out how to value each of these strategies differently, and to think about where value creation will happen.

“The dividend cut last year certainly is not helpful from a share price perspective, and was an incredibly difficult decision, and one that I hope not to be part of again.”