As oil & gas prices tumble down from 2022 highs, Shell’s profit follows suit

UK-headquartered energy giant Shell has revealed its results for the second quarter and first half of 2023, which show that its profit has been cut by more than half year-on-year, compared to the record high levels reported last year.

The effects of the downturn in oil and gas prices were visible in the results of most oil and gas players during the first quarter of 2023, when compared to the bumper profits recorded during 2022. However, this downward trend is even more pronounced in the second quarter of 2023, as shown by the quarterly results posted by Equinor.

Shell did not fare any better than the Norwegian energy giant, as the UK oil major’s income attributable to its shareholders totalled $3.13 billion in 2Q 2023, compared to $8.7 billion in the first quarter of 2023 and $18.04 billion in 2Q 2022. This represents a 64 per cent drop quarter-on-quarter. Compared with the first quarter of 2023, the decrease mainly reflects lower LNG trading and optimisation results, lower realised oil and gas prices, lower refining margins, and lower volumes.

In addition, the company highlighted that the income attributable to its shareholders entailed net impairment charges and reversals of $1.7 billion in 2Q 2023, which are included in identified items amounting to a net loss of $1.6 billion in the quarter, compared with identified items in the first quarter of 2023, which amounted to a net loss of $0.5 billion.

The oil major’s income attributable to its shareholders for the first half of 2023 was $11.84 billion, compared with $25.16 billion in the first half of 2022. This is a decrease of 53 per cent year-on-year, which reflects lower realised oil and gas prices, lower volumes, and lower refining margins, partly offset by higher mobility margins.

Additionally, net impairment charges and reversals of $2.1 billion are included in the income attributable to Shell’s shareholders in 1H 2023. This is included in identified items amounting to a net loss of $2.1 billion, compared to identified items in the first half of 2022, which amounted to a net gain of $1.1 billion.

Wael Sawan, Shell’s Chief Executive Officer, commented: “Shell delivered strong operational performance and cash flows in the second quarter, despite a lower commodity price environment. Today we are delivering on our Capital Markets Day commitment of a 15 per cent dividend increase.

“We are going further on our buyback guidance by commencing a $3 billion programme for the next three months and, subject to board approval, at least $2.5 billion at the 3Q 2023 results. As we deliver more value with less emissions, we will continue to prioritise share buybacks, given the value that our shares represent.”

The UK player’s adjusted earnings in 2Q 2023 – driven by the same factors as income attributable to its shareholders – were $5.07 billion, compared to $9.65 billion in the previous quarter and $11.47 billion in 2Q 2022. Shell’s adjusted earnings and adjusted EBITDA for the first half of 2023 were $14.72 billion, compared to $20.6 billion in the first half of 2022.

Moreover, the firm’s cash flow from operating activities for the second quarter of 2023 was $15.1 billion, compared to $14.16 billion in 1Q 2023 and $18.66 billion in 2Q 2022. This encompassed a working capital inflow of $4.8 billion and tax payments of $3.8 billion while the working capital inflow mainly reflected lower prices on inventories, initial margin inflow, a decrease in over-the-counter collateral, and other accounts receivable and payable movements.

Shell’s cash flow from operating activities for the first half of 2023 was $29.3 billion, compared to $33.5 billion in 1H 2022. It included working capital inflows of $4.1 billion and tax payments of $6.9 billion.

The firm’s cash flow from investing activities for the second quarter of 2023 was an outflow of $3 billion and included capital expenditure of $4.6 billion, net other investing cash inflows of $1.1 billion, and divestment proceeds of $0.5 billion. In 1H 2023, the cash flow from investing activities was an outflow of $7.3 billion, including capital expenditure of $10.8 billion, divestment proceeds of $2.2 billion, and net other investing cash inflows of $1.2 billion.

At the end of the second quarter of 2023, Shell’s net debt was $40.3 billion, compared with $44.2 billion at the end of the first quarter of 2023 and $46.36 billion at the end of the second quarter of 2022. On the other hand, the firm’s gearing was 17.3 per cent at the end of the second quarter of 2023, compared with 18.4 per cent at the end of the first quarter of 2023 and 19.3 per cent at the end of 2Q 2022, driven by net debt reduction.

The UK-headquartered player also highlighted that shareholder distributions in 2Q 2023 amounted to $5.6 billion comprising repurchases of shares of $3.6 billion and cash dividends paid to its shareholders of $2 billion. Shell has now completed the $4 billion of share buybacks announced in 1Q 2023. The company also announced a share buyback programme of $3 billion, expected to be completed by the third quarter 2023 results announcement.

The energy giant’s total oil and gas production in the second quarter of 2023 was 2 per cent higher than in the first quarter of 2023 mainly due to the ramp-up of new fields, and lower maintenance. The company’s total oil and gas production increased by 6 per cent in 1H 2023, compared to 1H 2022, primarily due to lower maintenance in Pearl GTL, Prelude, Trinidad and Tobago, and ramp-up of new fields in Oman and Canada, partly offset by derecognition of Sakhalin-related volumes and production-sharing contract effects. In line with this, the firm’s LNG liquefaction volumes decreased by 8 per cent mainly due to the derecognition of Sakhalin-related volumes.

Furthermore, Shell completed the restart of operations at the Pierce field in the UK North Sea in April 2023, following a redevelopment to enable gas production, after years of the field producing only oil. The firm agreed to sell its participating interest of 35 per cent in Indonesia’s Masela production sharing contract in July 2023 to Indonesia’s PT Pertamina Hulu Energi and Petronas Masela. This includes the Abadi gas project.

Shell’s Renewables and Energy Solutions segment saw earnings of $530 million in 2Q 2023, compared with $2.2 billion in 1Q 2023 and a loss of $173 million in 2Q 2022. Compared with the first quarter of 2023, the earning reflected higher operating expenses with an increase of $99 million, and lower margins – a decrease of $75 million – mainly from trading and optimisation results in the Americas due to seasonally lower demand and decreased volatility, partly offset by lower taxes, thanks to a decrease of $63 million.

This segment’s earnings were $2.73 billion in 1H 2023, compared with a loss of $1.71 billion in the first half of 2022. This reflected higher operating expenses (an increase of $207 million), and lower margins (a decrease of $170 million), mainly from trading and optimisation results for gas and power in the Americas and Australia, partly offset by Marketing in Europe.

Recently, Shell unveiled plans to spend around $40 billion on its Integrated Gas and Upstream businesses while investing $10-15 billion from 2023 to 2025 to support the development of low-carbon energy solutions, including biofuels, hydrogen, electric vehicle charging, and carbon capture and storage (CCS).

The oil major believes that LNG is set to play “an even bigger role” in the energy system of the future than it plays today. In light of this, the company also disclosed its intention to spend about $13 billion a year during this decade on oil and gas with a focus on LNG, which adds up to potentially over $100 billion in total by 2030.

Within its outlook for the third quarter of 2023, Shell reveals that the cash capital expenditure range for the full year has been lowered and is expected to be within $23 – 26 billion while Integrated Gas production is anticipated to be approximately 870 – 930 thousand boe/d with LNG liquefaction volumes predicted to be around 6.3 – 6.9 million tonnes.

The company explains that this production and LNG liquefaction outlook reflects scheduled maintenance – including Prelude and Trinidad and Tobago – while Upstream production is expected to be about 1,600 – 1,800 thousand boe/d, which reflects scheduled maintenance across the UK player’s portfolio. Adjusted earnings are expected to be a net expense of approximately $500 – $700 million in the third quarter of 2023 and a net expense of around $2.4 – $2.8 billion for the full year 2023.

With the climate crisis raging unabated, many environmental activists have expressed outrage over Shell’s $5.1 billion earnings in 2Q 2023, even though this is significantly lower than record-breaking profits from last year. Some politicians have also joined the movement criticising the profits reported by Shell and other oil and gas companies.

Izzie McIntosh, climate campaign manager at Global Justice Now, underscored: “As extreme heat rips through large parts of the globe, and people still struggle to pay their bills, Shell has once again made obscene profits out of fuelling climate disaster.

“In a week where Rishi Sunak has been professing concern over the cost for consumers of green changes, it’s the height of hypocrisy to be letting big companies like Shell get away without paying for the pollution they’re causing. Our government must step in to make the fossil fuel industry pay, and begin to cut off its business model of profiting from destruction.”