27th Oct 2022 13:02
(Alliance News) - Shell PLC's third quarter results were being cheered by investors on Thursday, as it continues to benefit from Europe's energy crisis sending oil and gas prices higher.
"With oil prices down from their triple-digit highs this summer, it was inevitable to see big oil's profits start to thin. However nearly USD7 billion in profits for the quarter is nothing to sneeze at, and is a far cry from the losses Shell suffered last year. Although the group isn't printing money at record pace anymore, oil prices are still elevated by historical standards and that means Shell has more than enough to continue boosting shareholder rewards," Hargreaves Lansdown equity analyst Laura Hoy said.
The oil major, flush with cash, will buy back USD4 billion of its shares, after completing a USD6 billion share buyback announced in July. It expects to complete its USD4 billion share buyback by February 2, the day it will release its 2022 results.
Shares were 5.2% higher to 2,418.50 pence, and are up 49% so far in 2022.
"Shell, like all the oil majors, has seen a big jump in revenues and profits this year, and this is reflected in its share price which is higher today on the back of another buyback," CMC Markets analyst Michael Hewson said.
Shell reported attributable income totalling USD6.74 billion in the third quarter, after oil prices surged, improving from a loss of USD447 million in the same period last year.
The latest profit was however far lower when compared with its second-quarter net profit of USD18.04 billion. Shell alerted the market on the comparison earlier this month, blaming the drop on a slump in refining margins.
Adjusted earnings jumped to USD9.45 billion from USD4.13 billion.
Cash flow from operating activities fell to USD12.54 billion from USD16.03 billion.
Total revenue in the third quarter rose to USD98.76 billion from USD61.56 billion.
CMC's Hewson said: "There was little prospect that today’s Q3 numbers would be able to match those of Q2 given the declines in both oil and gas prices since the summer, but nonetheless today’s Q3 numbers will once again hasten further calls for higher windfall taxes alongside cries of obscene profits."
Laith Khalaf, head of investment analysis at AJ Bell, agreed with Hewson, feeling the hefty profit seen in the third quarter will make it harder for the energy giant to hide from the political fallout.
"Given it now plans to reward shareholders with a windfall of their own through its pledge to increase the fourth quarter dividend, calls for a further levy on Shell's bumper profits are only likely to increase," he said. "In fairness, Chief Executive Ben van Beurden has been self-aware enough to acknowledge this fact, and he could argue he has to reward shareholders who, after all, saw the first cut in the dividend since the Second World War during the pandemic."
Khalaf added: "The optics of paying out more to investors aren't too clever when many households are really struggling with their energy bills."
Third quarter production was at 2.8 million barrels of oil equivalent per day, down 9.8% from 3.1 million a year ago, and 4.6% lower than 2.9 million in the second quarter.
By division, Shell reported adjusted earnings of USD5.90 billion from Upstream in the third quarter, up 20% from USD4.91 billion in the second quarter. Integrated Gas adjusted earnings were USD2.32 billion, down 38% from USD3.76 billion a quarter ago.
interactive investor analyst Victoria Scholar said: "The war in Ukraine and the corresponding surge in commodity markets brought about two consecutive quarters of record results for Europe’s biggest oil and gas company.
"This allowed Shell to generously return cash to shareholders through its dividend and share repurchase scheme. However, with the summer’s declining oil prices, shrinking refining margins and volatile and dislocated markets negatively impacting its gas trading business, profits have fallen from the highs, although they are still more than twice its earnings in the same quarter last year."
Shell declared a third-quarter dividend of 25 US cents, unchanged from the second quarter and slightly up from 24 US cents a year ago. The company aims to increase the dividend per share by about 15% for the fourth quarter of 2022, subject to board approval.
Scholar added: "The current quarter looks brighter for Shell thanks to recent bullish oil price momentum driven by OPEC+'s decision to sharply cut production at the start of October. The oil giant looks set to enjoy a tailwind from Brent crude's more than 12% jump over the last month, reversing some of the recent oil market downtrend.
"Amid the equity market turmoil, oil & gas has been a major pocket of outperformance this year with investors in Shell benefiting from its dividend, share buyback and share price appreciation of nearly 40% year-to-date."
By Paul McGowan; [email protected]
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