Shell scores high against backdrop of lower oil & gas prices while ConocoPhillips’ earnings take a hit

Two more oil majors – Shell and ConocoPhillips – have joined their peers in posting results for the first quarter of 2023 that were hampered by the downward trend and volatility, which has befallen the oil and gas prices after the elevated levels observed last year during the heights of the global energy crisis. While the UK-headquartered giant still managed to tuck significant profit under its belt, the U.S.-based player appears to have been less fortunate in getting to grips with the downturn, as its earnings reflect a bigger impact.

The energy crisis, which swept across the world in 2022 to put energy security at the forefront, ushered in a bonanza for global oil and gas companies, resulting in bumper profits, as demonstrated by the full-year results provided by Eni, Equinor, TotalEnergies, BP, Shell, Chevron and ExxonMobil.

However, 2023 brought a plot twist, as oil demand seemed to be getting crippled by the prospects of an economic slowdown and recession. In light of this, forecasts indicate that Brent oil prices will likely fall below $80 a barrel despite OPEC+’s recent efforts to support that level with new production cuts.

Shell and ConocoPhillips are not the only oil majors, which are grappling with the effects of the changes in the energy industry, as the lower oil and gas prices have also left their mark on three European oil majors – BP, TotalEnergies, and Eni – and their U.S. counterparts – ExxonMobil and Chevron – which recently disclosed strong operating and financial performance in 1Q 2023, albeit to a different extent, even though prices are no longer anywhere near the highs seen at the peak of the global energy crisis last year.

Regarding Shell’s performance in 1Q 2023, the oil major reported that the income attributable to its shareholders totalled $8.7 billion, compared to $10.4 billion in the fourth quarter of 2022 and $7.1 billion in 1Q 2022. Compared with the fourth quarter of 2022, the decrease in 1Q 2023 mainly reflected unfavourable tax movements, and lower realised oil and gas prices, partly offset by lower operating expenses and higher Chemicals and Products trading and optimisation results.

In addition, the company highlighted that the income attributable to its shareholders entailed impairment charges of $0.5 billion in 1Q 2023, which are included in identified items amounting to a net loss of $0.5 billion in the quarter, compared with identified items in the fourth quarter of 2022, which amounted to a net gain of $1.5 billion.

Wael Sawan, Shell’s Chief Executive Officer, commented: “In 1Q Shell delivered strong results and robust operational performance, against a backdrop of ongoing volatility, while continuing to deliver vital supplies of secure energy. We will commence a $4 billion share buyback programme for the next three months as part of our commitment to deliver attractive shareholder returns.”

Moreover, the UK player’s adjusted earnings in 1Q 2023 – driven by the same factors as income attributable to its shareholders – were $9.6 billion, compared to $9.8 billion in the previous quarter and $9.1 billion in 1Q 2022. The UK company strengthened its portfolio of assets with the completion of the acquisition of Nature Energy, the investment decision for the Dover tie-back to the Appomattox production platform in the U.S. Gulf of Mexico (GOM) and the start of production at Vito in the U.S. GOM and restart of Pierce in the UK.

The oil major’s cash flow from operating activities for the first quarter of 2023 was $14.16 billion, compared to $22.4 billion in 4Q 2022 and $14.8 billion in 1Q 2022. This encompassed a working capital outflow of $0.8 billion and tax payments of $3.1 billion while the working capital outflow mainly reflected the reversal of temporary deposits from joint ventures received in the fourth quarter 2022, and other accounts receivable and payable movements, partly offset by initial margins inflows, and lower prices and inventories.

The firm’s cash flow from investing activities for the first quarter of 2023 was an outflow of $4.2 billion and included capital expenditure of $6.2 billion, which entails the acquisition of Nature Energy Biogas for nearly $2 billion, and divestment proceeds of $1.7 billion. At the end of the first quarter of 2023, Shell’s net debt was $44.2 billion, compared with $44.8 billion at the end of the fourth quarter of 2022 and $44.49 billion at the end of the first quarter of 2022.

On the other hand, the firm’s gearing was 18.4 per cent at the end of the first quarter of 2023, compared with 18.9 per cent at the end of the fourth quarter of 2022 and 21.3 per cent at the end of 1Q 2022, driven by net debt reduction and higher equity. The UK-headquartered player also highlighted that shareholder distributions in 1Q 2023 amounted to $6.3 billion while dividends declared to its shareholders amount to $0.2875 per share. Shell has now completed the $4 billion of share buybacks announced in 4Q 2022.

The energy giant’s total oil and gas production in the first quarter of 2023 was higher than in the fourth quarter 2022 mainly due to lower scheduled maintenance and lower unscheduled deferment, partly offset by divestments. Shell’s LNG liquefaction volumes went up by 6 per cent mainly due to lower maintenance at Prelude, and the ramp-up of new fields, partly offset by higher fields decline.

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The company expects its cash capital expenditure to be within the $23 – 27 billion range for the full year while Integrated Gas production is anticipated to be approximately 920 – 980 thousand boe/d with LNG liquefaction volumes being around 6.8 – 7.4 million tonnes. The UK player’s Upstream production is expected to be about 1,600 – 1,800 thousand boe/d.

Shell’s corporate adjusted earnings are forecasted to be a net expense of approximately $400 – $600 million in the second quarter 2023 and a net expense of around $2,200 – $2,600 million for the full year 2023, excluding the impact of currency exchange rate effects.         

The #StopCambo movement issued a statement following the release of Shell’s results for 1Q 2023, outlining that these profits were made “at the expense of the health and wellbeing of people living on the frontlines of extraction.”

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The environmental activists claim that companies like Shell have been “harming communities around the world while racking up huge profits at the expense of the communities they exploit” for decades. 

In a response to Shell’s quarterly report, Greenpeace wrote: “How about you properly compensate the local communities your oil spills have devastated in Nigeria – rather than giving your shareholders more cash.”

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ConocoPhillips’ earnings and adjusted earnings were $2.9 billion in 1Q 2023, compared with earnings of $5.8 billion and adjusted earnings of $4.3 billion in 1Q 2022. The U.S. player explained that the decrease was primarily due to lower realised prices, partially offset by commercial performance and timing.

The firm’s total average realised price was $60.86 per barrel of oil equivalent (boe) in 1Q 2023, which is 21 per cent lower than the $76.99 per boe realised in the first quarter of 2022. The U.S. giant’s cash provided by operating activities was $5.4 billion. The oil major generated a CFO of $5.7 billion – excluding a $0.3 billion change in operating working capital – and received disposition proceeds of $0.2 billion.

Furthermore, the company funded $2.9 billion of capital expenditures and investments, including $0.4 billion for its investment in the joint venture responsible for the development of Port Arthur LNG and $0.1 billion in Lower 48 acquisitions. Aside from this, the firm distributed $3.2 billion to shareholders through a three-tier return of capital framework, including $1.7 billion through share repurchases and $1.5 billion through the ordinary dividend and VROC.

Ryan Lance, ConocoPhillips’ chairman and chief executive officer, stated: “Our first quarter results are a clear demonstration of the durable, returns-focused value proposition that we laid out at our recent analyst and investor meeting.

“We achieved record production, advanced our joint venture at Port Arthur LNG, received a favorable record of decision for the Willow project in Alaska and announced plans to assume upstream operatorship of and further expand our ownership position at APLNG. We also accelerated our 2030 GHG emissions-intensity reduction target, progressing our net-zero operational emissions ambition.”

The U.S. player’s production for the first quarter of 2023 was 1,792 mboed, an increase of 45 mboed from the same period a year ago. After adjusting for impacts from closed acquisitions and dispositions, the production in the first quarter of 2023 increased by 65 mboed or 4 per cent from the same period a year ago.

Based on the firm’s statement, the increase in production was primarily driven by new wells online in the Lower 48, and improved well performance across the portfolio, partially offset by normal field decline and downtime.

ConocoPhillips underlined that the production in the Lower 48 averaged 1,036 mboed in 1Q 2023, including 694 mboed from the Permian, 227 mboed from the Eagle Ford and 98 mboed from the Bakken. Additionally, a stabilizer expansion in the Eagle Ford and a planned turnaround at QatarGas 3 were completed in this period.

When it comes to the production for 2Q 2023, ConocoPhillips expects it to be 1.77 to 1.81 million barrels of oil equivalent per day (mmboed). The U.S. giant also raised full-year production guidance midpoint by 10 mboed, thus, the full-year production is now expected to be 1.78 to 1.80 mmboed, compared to prior guidance of 1.76 to 1.80 mmboed.

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