Shell undone by gas prices in Q2

The supermajor said it had gone backwards because of lower gas prices and the performance of the downstream division, with the backdrop of global instability. Its shares were off 5 per cent after the release of the half-year numbers. 

Upstream production was up four per cent in the first half but integrated gas saw a 3 per cent drop, and in the downstream division chemical sales fell 16 per cent year on year. Shell chief executive Ben van Beurden said the company had seen “challenging macroeconomic conditions in refining and chemicals”. 

One positive was free cash flow, which held up despite the overall miss. In the three months to 30 June, it climbed 70 per cent quarter on quarter to $6.9bn, and looking at the half it was up 24 per cent on the year before. Good news for Shell's army of dividend seekers. However, underlying cash generation came in well below consensus and Royal Bank of Canada analyst Biraj Borkhataria pointed out this could cause a problem with the supermajor’s cash return plans. “Shell’s underlying cash generation was $9.5bn (post-interest) vs RBC [estimate] $11.1bn, meaning that the company just about covered its capex ($5.8bn) and dividend ($3.8bn), suggesting the $2.1bn in buybacks in the quarter were not covered by organic cash flow,” he said. Gearing climbed to 27.6 per cent, compared with 23.6 per cent a year ago. 

Shell’s current $25bn buyback programme has another 18 months to run, and $2.75bn more will go to purchasing and cancelling stock by the end of October. 

Panmure Gordon analyst Colin Gordon said it was a “shocker” of a quarter, picking out the earnings per share as a low point. The June quarter adjusted EPS of 36¢ was the lowest for two years. 

Consensus forecasts full-year Ebitda at 5 per cent lower than 2018 at $58.5bn, before catching up in 2020 to reach $63.5bn.