Shell’s profits reach new highs amid energy crisis

Shell (SHEL) will further increase its buyback programme on the back of record earnings, which were driven by high oil prices and another quarter of dizzying gas prices.

Adjusted earnings of $11.5bn (£9.4bn) were a quarter ahead of the March quarter, driven by higher profits in both the upstream segment (representing $1.5bn of the $2.4bn gain over first-quarter figures) and the chemicals segment ($900mn). On a half-year basis, adjusted earnings more than doubled on last year to $20.6bn. 

The profit surge comes as concerns rise over further power price hikes in the UK and whether parts of Europe will be able to keep the lights on over winter. Europe is under more strain after Russia cut Nord Stream 1 supplies last week, while consumers are being hit by escalating utility bills and fuel costs. 

Shell chief executive Ben van Beurden said his company could not perform “miracles” and cut prices at the pump. He highlighted new project approvals and spending that would increase North Sea production, such as the addition of a floating production, storage and offloading vessel to the Pierce field.

Looking further ahead, the company last week took the final investment decision on the Jackdaw field and other operations in Australia and Qatar. Jackdaw will produce up to 40,000 barrels of oil equivalent per day (boepd) at peak production. It had initially been rejected by the North Sea Transition Authority (NSTA) but that decision was reversed earlier this year. 

The production outlook for the September quarter is 890,000-940,000 barrels of oil equivalent per day (boepd), below the June quarter average of 944,000boepd.  

The dividend has been held at 25c a share but, after finishing this year’s $8.5bn buyback scheme, the company has launched $6bn in share repurchases for the current quarter - $2bn more than had been expected. “On a flat dividend, it’s plausible that Shell could return close to $30bn to shareholders this year, or more than 15 per cent of its market cap,” said RBC Capital Markets analyst Biraj Borkhataria. 

The outlook for energy prices is still strong, even if it will pain consumers. Shell’s free cash flow and lower debt levels mean it is in fine shape for when energy prices come back down to earth. But given the uncertainty over how the company will both hold onto cash generation and stick to its green plans, we retain our sell recommendation. 

Last IC View: Sell, 2,293p, 5 May 2022