Shell buys back $3.5bn in shares despite falling profits

Shell announced a larger than expected $3.5billion share buyback, even though the oil and gas company’s quarterly profit fell by a quarter to $6.2billion due to lower prices.

Wael Sawan is the chief executive officer of FTSE 100 Energy Group. He said that it will not follow its US competitors in making large acquisitions, but instead, continue to invest cash in buying back its own shares.

Shell’s adjusted profits were lower than the $9.5 billion that it earned in the same period in 2022 but in line with analyst expectations. The company said its traders of liquefied gas (LNG), who had a poor second quarter, performed better in the third quarter. BP, on the other hand, reported a weaker third quarter in its gas traders’ performance, citing a lack market volatility after a strong first-half.

Shell will buy back $3.5billion of its own stock in the next 3 months. This is an increase over the $3billion it bought in the previous three months. Sawan stated that the total amount of buybacks announced in the second half of this year is “well above the $5 billion announced in capital markets day on June”, bringing the total shareholder return for the year to $23 billion.

ExxonMobil, Shell’s biggest American rivals, and Chevron, agreed megadeals last month to buy Pioneer for $60 billion. They also bought Hess for $50 billion. This was a double-down on oil and natural gas. Sawan stated that it was “keenly watching the transactions which have been made” but felt its current strategy is “absolutely right for us”. He stated that the company would “continue to allocate capital more towards share buybacks than large acquisitions”.

He told analysts that the buyback strategy was “the most accretive to our shareholders” without having to make a large inorganic acquisition that would be dilutive.

Shell is Europe’s largest oil and gas company, employing more than 90,000. It has offices in over 70 countries. The company reported a record profit of $40 billion in 2014, after benefiting greatly from the soaring prices of oil and gas following Russia’s invasion Ukraine. Since then, oil prices have fallen due to concerns over the global economy. Brent crude, which is the benchmark price for oil, has averaged less that $87 per barrel, down from $100 in the same time period last year.

The gas prices also fell after the mild winter of last year helped Europe cope better than expected without pipeline supplies coming from Russia. UK benchmark gas prices in 2023 were 70 percent lower than they were a year ago.

Shell has committed itself to reducing its emissions to zero by 2050. Sawan, however, who assumed the top position at the beginning of this year has abandoned elements of its low-carbon strategy in order to concentrate more on oil and natural gas. He has also moved quickly to reduce less profitable parts within the business. Sawan refused to speak yesterday, but in a press release said: “We are continuing to simplify our portfolio and deliver more value while emitting less.”

Shell has announced that capital expenditures this year will not exceed $25 billion. This is down from the previous guidance of $26 billion. Biraj Borkhataria, RBC Capital Markets, said the tighter guidance is “another indication of continued capital discipline”.

Shell has also revealed that it paid a fine in relation to the decision made in June not to enter into contracts to sell electricity from a proposed wind farm offshore in America. Sinead Gorman said that Shell did not want “to lock in revenues in an environment of hyperinflation” when it had not locked in costs. Shell’s penalty was “considerably lower than $100 million”, said Sinead Gorman, Shell chief financial officer.

In recent days, BP Equinor as well as Orsted all recorded large writedowns for American offshore wind project due to the rising costs.

Shell’s shares closed at £27.68, up 111p or 4.2%.

Shell may produce less LNG than expected during the fourth quarter due to the fallout of the Israel-Hamas conflict (Emily Gosden).

After Israel closed a field that supplies some of the gas to the project, the world’s largest independent LNG producer stated there was “high” uncertainty about the amount of available gas for the Egyptian LNG Plant it co-owns.

Shell produced 6,9 million tonnes LNG globally in third quarter. It now expects to produce between 6.7-7.3 million tonnes during the fourth quarter. RBC Capital Markets analysts stated that this was “below the level we had expected”.

Shell’s performance as a liquefied natural-gas trader improved, whereas BP had a poor quarter due to the stabilisation of markets.

Shell stated that the outlook was a result of “lower than expected liquefaction volume from Egypt”, as well as maintenance at its Prelude floating gas plant offshore Australia.

Egypt imports gas from Israel and produces LNG to export to Europe. The country’s LNG exports are down this year due to a strong domestic market.

After the Hamas attacks of October 7, Israel closed down Tamar, a large gas field that could be vulnerable to rocket attacks from Gaza. Israel has reportedly stopped gas exports to Egypt.

Shell is the owner of just over one-third of the Egyptian LNG Plant near Alexandria. The plant gets some of its gas by importing surplus quantities of Israeli Gas from the Tamar Fields, according to a Shell spokesman. The recent events in the Middle East have led to a gas shortage in Egypt. This includes ELNG. It is difficult to estimate the number of cargos that will be available for export in the remainder of 2023, given the uncertainty surrounding the gas feed to ELNG.