- Shell exits China's power markets
- Leverage down as cash rolls in
Shell (SHEL) recently made the financial pages after details of its oil and gas trading operations were unveiled in court documents. It seems the energy giant makes around $1bn (£800mn) in annual earnings from its crude oil trading alone. Higher margins from this corner of the business in the first quarter were partly offset by lower LNG trading and unfavourable tax movements. Financial performance was helped by a 9 per cent increase in refinery processing intake, although the group booked an unfavourable movement relating to the fair value accounting of commodity derivatives, offset by favourable currency movements, netting off to a $600mn loss.
Adjusted cash profits increased by 15 per cent on the prior quarter to $18.7bn, but were down 13 per cent year on year. Operating cash flow was up 6 per cent on the prior quarter at $13.3bn.
Strengthening cash generation is enabling Shell to pay down debt, but it also announced another $3.5bn share buyback tranche.
Looking ahead, the group anticipates upstream daily production reaching 1.63mn-1.83mn barrels of oil equivalent in the second quarter, while refinery utilisation is expected to be in the range of 87-95 per cent.
Shell also recently announced that it had exited China's power markets as part of management’s focus on the group’s more profitable operations, ergo those linked to hydrocarbons. It comes as a resolution has been filed ahead of this month’s annual meeting that calls on the group to tailor its climate goals to meet greenhouse gas emission targets under the Paris Agreement. Some sizeable shareholders are on board with the resolution, although industry evangelism on the 'net zero' front has wavered as the Russian-Ukraine war has dragged on. Analysis from Deloitte points to an elevated global hydrocarbon investment level of about $580bn in 2024.
Last IC view: Hold, 2,486p, 1 Feb 2024
