Shell Maintains Pace of Buybacks as Profit Beats Estimates

(Bloomberg) -- Shell Plc kept up the pace of its share buybacks after a strong performance from its gas traders offset the impact of lower commodity prices in the fourth quarter. 

The London-based energy giant benefited both from “exceptional” trading opportunities on the global gas market and higher volumes of liquefied natural gas thanks to the end of maintenance works at its Prelude facility in Australia. 

The company will repurchase $3.5 billion of shares this quarter, matching the level of the preceding three months. It is the first of the so-called supermajors to report earnings in what was expected to be a weaker quarter across the board for the industry.

“Shell had already flagged expectations on better gas trading, however the result was well ahead of our estimates,” RBC analyst Biraj Borkhataria said in a note. With LNG volumes still rising “this should bode well for trading and optimization potential into the start of the year.”

Shares of the company rose 1.8% to 2,492 pence as of 8:01 a.m. in London. 

Shell’s adjusted net income for the three months ended Dec. 31 was $7.31 billion, the company said in a statement on Thursday. That was down from $9.81 billion from the same period in 2022 but beat the average analyst estimate of $6.14 billion.

Even with the drop in profit from a year earlier, Shell’s earnings are still high by historical standards. The company’s cash flow from operations in 2023 of $54.20 billion was the second-highest on record, Chief Financial Officer Sinead Gorman said on a call with reporters. The company will continue to return 30% to 40% of this to investors and strive for “consistency” in its returns, she said. 

Shell’s chemicals unit posted the worst performance, with adjusted earnings dropping from $1.38 billion in the third quarter of 2023 to just $83 million in the final three months of the year. Margins in the business were hammered by a global oversupply and weak demand, according to the statement. 

Profit from chemicals and oil products — a core part of the majors’ global operations — was actually outstripped by the renewables and energy solutions division, which reported adjusted earnings of $155 million. 

Shell’s overall capital expenditure in 2023 fell by 1.7%. In the company’s renewables and energy solutions unit the reduction was 23%, taking spending to its lowest level since 2021. Shell under Chief Executive Officer Wael Sawan has vowed to boost returns to shareholders by scaling back less profitable parts of the business, such as renewables.

Spending on what Shell calls low-carbon energy solutions rose to $5.6 billion from $4.3 billion in 2022. That includes electric vehicle charging and low-carbon fuels which including investments related to biofuels.

“Shell delivered another quarter of strong performance,” Sawan said in the statement. “As we enter 2024 we are continuing to simplify our organisation with a focus on delivering more value with less emissions.”

(Updates with details on spending in 11th paragraph.)

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