By Adam Whittaker
Shell's quarterly earnings more than doubled, helped by strong oil trading and higher prices, but the energy major warned of lower gas production due to the conflict in the Middle East, and launched a smaller buyback than in previous periods.
The British energy giant's adjusted earnings--a closely watched metric that strips out certain commodity price adjustments and one-time charges--rose to $6.915 billion in the first quarter from the $3.26 billion it reported in the prior quarter. The fourth quarter is typically a slower period for the company, and included deferred tax payments.
Analysts had expected adjusted earnings of $6.36 billion, according to estimates compiled by Vara Research. Earnings also came in higher than the $5.58 billion the group reported in the same period last year.
Shell's shares traded down in line with peers Thursday as oil prices slipped on optimism the U.S. and Iran may be edging closer to agreeing on a cease-fire.
Around a fifth of the world's daily oil-and-gas supply has been unable to exit the Strait of Hormuz since the U.S. and Israel launched attacks on Iran in late February.
Energy majors have capitalized on the higher oil-and-gas prices. Traders have also delivered bumper profits as they exploit market volatility. Earnings within Shell's chemicals and products division, which houses its oil traders, surged to $1.925 billion from a $66 million loss in the prior quarter.
While the higher prices have offered a cash windfall, some energy companies have been forced to cut production in the region. Some have suffered direct hits on energy facilities that will take years and billions of dollars to fix. Investors want to know how long it will take companies to restore production once the conflict ends.
Shell has lost roughly 10% of its total production due to damaged or shutdown assets in Qatar, where it owns the Pearl gas-to-liquids plant and has a 30% stake in a QatarEnergy LNG facility. The Pearl GTL was damaged by an Iranian attack in March. One facility--referred to as a train--will take around a year to fix, while the other remains unaffected.
The disruption means that for the second quarter, production from Shell's integrated gas unit is forecast to fall to between 580,000 and 640,000 barrels of oil equivalent a day, from 909,000 in the first quarter.
Shell said Thursday that it expects it will be able to restart production at the undamaged train as soon as the conflict allows. This restart, however, is dependent on being able to move production through the Strait of Hormuz, Shell finance chief Sinead Gorman said. Gorman said that it could take a couple of weeks for the backlog of vessels trapped in the Strait to clear once they are able to do so.
Production in Oman, which represents another roughly 10% of Shell's hydrocarbon volumes, has so far been unaffected by the war.
The company said it would buy back $3 billion of shares, down from the $3.5 billion buybacks it has announced in recent quarters. Gorman said the company cut the buyback to reallocate some capital toward the balance sheet, which grew heavier with debt over the quarter. Net debt stood at $52.6 billion, up from $45.7 billion at the end of the prior quarter.
Despite the smaller buyback, Shell raised its interim dividend by 5% to $0.3906 a share, which Gorman called a reflection of the company's confidence in its long-term cash flows.
The dividend raise was a surprise, Barclays analyst Lydia Rainforth wrote. The increase, however, was more than offset in cash terms by the cut to the buyback, she said.
Write to Adam Whittaker at adam.whittaker@wsj.com
(END) Dow Jones Newswires
05-07-26 0826ET
