Shell reported better than expected profits for the first quarter of the year. The company benefited from an improved performance in oil trading, and a rebound in the refining margins.
The largest oil and gas company in Europe reported earnings adjusted to $7.7billion during the first quarter of this year. This is down from the $9.7billion profit made over the same period of last year. However, it was higher than the $6.5billion that City analysts predicted for the quarter.
FTSE 100 Group rewarded its investors by announcing it would purchase $3.5 billion worth of shares in the next three month period, matching the $3.5 million buyback from the previous quarter. This was the seventh quarter in a row that the company announced buybacks between $3 billion and $4 billion.
Shell’s chief executive Wael Sawan faces new questions about whether he can lead the oil giant to move its listing from London, to New York.
The buybacks are on top of the dividend payout for the first quarter, which was 34.4 cents per share. This is a 20 percent increase over the payout from the first quarter last year.
RBC Capital analysts said that the higher operating cashflow of $16.1 billion, which was higher than expected, showed there is room to increase shareholder return in the second half.
Wael Sawan is the chief executive officer of Shell. He said that returning capital back to shareholders was a higher priority than mergers and major acquisitions. “We continue to see that the share price of our company does not reflect the true value of the business.”
The better than expected quarterly figures are coming as Sawan, , , , , faces renewed questions about whether he will be leading the oil major in switching its listing from London, to New York, to try to close the valuation difference between the group’s American peers.
He said: “We knew when we started the Capital Markets Day sprint of 10 quarters that it would take time, as we needed to regain the trust of market.
Sawan said that he did not worry that the valuation gap between American peers has not yet closed. He said that the focus of this “sprint”, which lasted for a week, was to increase free cashflow in order to improve “fundamental value” of the company. Moving the listing to New York, however, would not have achieved this, he claimed.
The primary listing of the group would still be “under review”, but “was not currently a discussion within the company”.
He said that the problem was not London, but rather, it was a matter of basic fundamentals. The cost base and capital outlay were previously too high.
Shell is also facing a resolution submitted by a group that collectively owns 2,5% of the oil giant, , urging the group to set stricter climate targets . Shell said that shareholders should vote against this resolution.
Sawan claimed that the proposal was not in line with shareholder interests or what customers wanted and was “bad government”.
Shell attributed its performance to higher oil trading margins and a recovery of its refining businesses.
The integrated gas business’ profits, which include the secretive trading division, decreased to $3.7 billion from $4.92 last year. However, they were still higher than the $2.9 billion analysts expected. Sawan said that the company’s improved operational performance was responsible for the higher profit. 7.6 million tonnes (LNG) of liquefied gas were delivered to the market.
Shell’s integrated division of gas realized an average LNG price of $73 per barrel in the first quarter. This was up from $65.50 per barrel in the last three months of the previous year.
Since being named as the new CEO, Sawan has implemented a “structural costs-reduction” plan, which includes plans to reduce operational expenses by $2 to $3 billion between now and the end of the year. More than $1 billion of that amount has already been reduced.
The capital expenditure guidance for the year has been maintained between $22 billion to $25 billion. This would be a drop from $24.4 billion last year.
Shell shares have increased 54p or 1.9 percent to £28.73, after rising 22 per cent in the last year.