Shell posts 56% drop in second-quarter profit on lower oil and gas prices

The company plans to buy back shares worth $3 billion in the next three months

A Shell gas station in China. Shell's adjusted earnings of $5.07 billion came in below the company’s consensus forecast. Getty

Oil and gas company Shell’s second-quarter profit plunged by about 56 per cent on an annual basis amid lower hydrocarbon prices.

The adjusted profit of $5.07 billion was below the company’s consensus forecast of an income of $5.6 billion.

The company also said on Thursday that it would buy back shares worth $3 billion in the next three months, down from $3.6 billion in the previous three. It will also raise its dividend by 15 per cent to $0.33 a share.

“Shell delivered strong operational performance and cash flows in the second quarter, despite a lower commodity price environment,” its chief executive Wael Sawan said.

“As we deliver more value with less emissions, we will continue to prioritise share buybacks, given the value that our shares represent.”

Shell's shares were trading 1.59 per cent lower on the London Stock Exchange at 12.46pm UAE time on Thursday.

Shell said the weaker results were due to lower oil and gas prices and refining margins, as well as a fall in sales volumes.

Brent, the benchmark for two thirds of the world’s oil, is currently trading at about $83 a barrel after surging to about $140 last year following Russia’s invasion of Ukraine.

Lower natural gas prices also weighed on Shell’s integrated gas segment, where adjusted earnings fell to about $2.5 billion in the reported quarter, down from $3.76 billion in the same period a year earlier.

The company’s liquefied natural gas sales volumes rose 5.4 per cent, year on year, to 16.03 million tonnes in the second quarter.

However, it was lower than the 16.97 million tonnes Shell reported in the first quarter of this year.

Meanwhile, the company's oil and gas production rose by 2 per cent, compared with the preceding quarter, helped by the ramp-up of new fields and lower maintenance.

Competition for LNG has increased since Russia's military offensive against Ukraine began last year, with Europe importing record volumes of the supercooled fuel to replace Moscow's gas supplies.

Global LNG trade hit a high of $450 billion in 2022 as Europe scrambled to secure supplies to replace Russian gas, according to the International Energy Agency.

Despite a rise in demand, LNG supply grew by only 5.5 per cent last year, mostly due to maintenance at large export terminals and as Freeport LNG’s Texas-based plant – one of the world’s largest export centres of the supercooled fuel – was shut down after a fire.

The IEA has warned that “fierce” competition for gas exports may emerge this winter on stronger-than-expected economic growth in China and colder weather in north-east Asia.

French energy group TotalEnergies also reported a drop in profit in the second quarter on falling oil and gas prices. AFP

In a separate report on Thursday, France’s TotalEnergies posted a drop in second-quarter net income due to lower natural gas prices and refining margins.

The company’s adjusted net income fell by 49 per cent to $5 billion.

Analysts were expecting TotalEnergies to report a profit of $5.2 billion in the reported quarter, according to Refinitiv Eikon.

The company's earnings from its integrated LNG division slumped by about 40 per cent, year on year, to $1.33 billion in the second quarter.

TotalEnergies produced 2.47 million barrels of oil equivalent per day in the three months ending on June 30, up 2 per cent from the same period a year earlier.

“In a favourable but softening oil and gas environment, TotalEnergies once again delivered [in] this quarter robust results, strong cash flow and attractive shareholder distribution,” said its chief executive Patrick Pouyanne.

“The board decided the distribution of a second interim dividend for the 2023 financial year in the amount of €0.74 per share, up 7.25 per cent annually, and authorised the company to buy back shares for $2 billion in the third quarter of 2023.”

TotalEnergies stock was up 0.37 per cent as of 1.05pm UAE time.