Shell’s first-quarter profits exceeded market expectations on Thursday, as the energy major maintained its dividend and announced a further $4bn of share buybacks.
The company reported adjusted earnings of $9.6bn, easily surpassing average analyst estimates of $8bn. Although lower than the $9.8bn Shell reported in the final quarter of 2022, its latest profits eclipsed the $9.1bn it made in the first three months of last year when Russia’s invasion of Ukraine sent oil and gas prices soaring.
The bumper earnings were driven by improved operational performance and better results in trading, Shell said in a statement. That helped offset the effect of lower oil and gas prices.
The quarter was the first for the company under chief executive Wael Sawan, who took the top job in January. Sawan, a Shell lifer and former head of its oil, gas and renewables businesses, has pledged to focus on performance in a bid to close a yawning valuation gap between Shell and US rivals, which are valued at higher multiples of their cash flow.
To help close that gap, Shell has committed to using excess cash to repurchase its own shares. In the first quarter, Shell said it had returned $6.3bn to shareholders through $2bn in dividend payments and $4.3bn of share repurchases.
Last year, the group distributed $26bn to investors, including $18bn in share buybacks, as the upheaval in global energy markets helped the company to a record annual profit of $40bn.
The biggest earnings driver in the first quarter was the integrated gas business, which includes Shell’s giant liquefied natural gas trading operation. Higher LNG production at Shell’s Prelude operation in Australia helped offset falling prices, while trading had another strong quarter, delivering gas earnings of $4.9bn.
Like BP and TotalEnergies, Shell does not provide a full financial breakdown of the profitability of its commodity traders, but its vast trading operation is an increasingly important driver of profits. Analysts at Bernstein Research estimate that trading contributed about $16.6bn in earnings before interest, tax, depreciation and amortisation in 2022, representing 20 per of the group earnings.
Sawan insists he does not plan to change the strategy he helped develop under former chief executive Ben van Beurden but has also indicated he would consider boosting oil production rather than continue to let it fall by 1 to 2 per cent per year as Shell previously pledged.
Shell has said it would provide more guidance about the companies’ plans and targets at an investor day in the US on June 14.
