Shell posts record profit as Ukraine war rocks energy markets

Shell reported the highest quarterly profit in its history as it capitalized on volatility in global energy markets following the Russian invasion of Ukraine.

Adjusted profit for Europe’s largest oil company rose to $9.1bn (€8.6bn) in the first three months of the year, nearly three times the $3.2bn it posted a year earlier. That topped analysts’ average estimates of $8.7 billion and topped $6.4 billion in the final three months of 2021.

The results complete a set of excellent first-quarter earnings for the world’s biggest energy companies, which have prompted renewed calls from UK politicians for an extraordinary tax on oil and gas profits. BP reported underlying profit of $6.2 billion, the highest since 2008, while Norway’s state-controlled Equinor posted its highest-ever quarterly pre-tax profit of $18 billion.

Conflict

Shell Chief Executive Ben van Beurden rejected the suggestion that oil and industry were only benefiting from the conflict.

“It’s not just war profit as some people would like to point out,” van Beurden said. “It is also largely due to the performance of the company, which has strengthened significantly in the run-up and also during the pandemic.”

Shell shares rose more than 3 percent in early trading on Thursday.

The group’s earnings were boosted by its integrated oil and gas production divisions, which generated $4.1 billion and $3.5 billion in adjusted earnings respectively, and by strong performance from its traders.

Shell is the world’s largest trader of liquefied natural gas and a major oil trader. LNG prices, in particular, have soared as European efforts to reduce reliance on gas piped from Russia have increased competition for cargoes of the fuel. Shell produced 8 million tons of LNG in the first quarter and sold 18.3 million tons, he said.

Shell had been able to redirect some of its LNG cargoes to Europe to meet growing demand, CFO Sinead Gorman said, resulting in trading and optimization gains similar to the previous quarter for gas and “significantly higher” for gas. petroleum products.

Debt

Rising profits helped Shell reduce net debt to $48.5bn from $52.6bn at the end of last year, but its spending plans remained unchanged at $23bn to $27bn. by 2022.

The UK-based supermajor said it had completed $4bn of the $8.5bn in share buybacks announced for the first half of the year and expected distributions to shareholders by the second half of 2022. exceed 30 percent of cash flow from operations. Cash flow from operations for the first quarter was $14.8 billion.

Shell had less exposure to Russia than its European rivals BP and Total. Before the war, Russia was expected to contribute 5 percent of Shell’s total oil and gas production in 2022, compared with 16 percent for Total and 28 percent for BP, according to the investment bank. Jefferies.

However, it has a complicated set of business positions to unwind as it leaves the country, including a 27.5 percent stake in the Sakhalin-2 liquefied natural gas project with Gazprom, two other joint ventures with the state-owned company, a retail network, a lubricants business, and a stake in the now-shelved Nordstream 2 project.

Despite the lack of potential buyers given Russia’s growing isolation, van Beurden insisted that Shell was making “good progress” in its efforts to sell its Russian assets. “It’s a business process, it’s not an abandonment,” he said.

The planned exits resulted in after-tax charges of $3.9 billion in the first quarter, the company said.

Profits

As with BP, Shell does not disclose how much of its profits were generated in the UK, but the UK-based supermajor has said it expects to invest between £20bn and £25bn in the UK energy system. over the next decade.

Most of that investment is earmarked for low- or zero-carbon projects, and while a windfall tax on oil and gas profits might not stop it, van Beurden stressed that investment on that scale required “a stable financial outlook.” and predictable.”

“We have a very strong commitment to investing in the UK because, first of all, we see the UK government being very supportive of the kind of investments we would like to make,” he said.

A key priority for Shell is the Jackdaw North Sea gas field which, if approved by the UK government for development, could start production in 2025 and produce enough power to heat 1.4 million homes. – Copyright The Financial Times Limited 2022

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