Shell (NYSE:SHEL) reported a significant 56% decrease in its second-quarter profits, totaling $5 billion, as both oil and gas prices and refining profit margins experienced declines. This prompted the energy giant to implement measures, including slowing down its share repurchase program.
The earnings for this quarter fell short of forecasts, following the exceptional earnings the company achieved in the previous year when energy prices surged due to Russia’s invasion of Ukraine. However, the current results are in line with Shell’s performance during the second quarter two years ago.
In response to the changing financial landscape, Shell disclosed its plans to repurchase $3 billion in shares over the next three months, a reduction from the previous three-month period, which saw $3.6 billion in buybacks. Despite this, the company raised its dividend to $0.33 per share, as announced in June.
In an effort to bolster shareholder returns and improve overall performance, Chief Executive Officer Wael Sawan emphasized the company’s commitment to share buybacks, given the value their shares represent.
The adjusted earnings of $5.073 billion for this quarter missed the company’s earlier projections of $5.8 billion. This stands in stark contrast to the record quarterly earnings of $11.5 billion achieved a year ago and $9.65 billion in the first quarter of 2023.
As part of its strategy to enhance performance, Sawan outlined plans in June to maintain oil output, expand natural gas production, and curtail investments in lower-return renewable energy ventures.
Shell’s shares experienced a decline of 1.7% by 0730 GMT, whereas the broader European energy index (.SXEP) only saw a 1% decrease. Analyst Giacomo Romeo from Jefferies expressed disappointment in the second-quarter numbers, citing lower-than-expected earnings from the upstream and chemicals divisions and weaker third-quarter guidance.
French rival TotalEnergies (TTEF.PA) and Norway’s Equinor (EQNR.OL) also reported a similar decline in profits.
The weaker results were primarily attributed to lower liquefied natural gas (LNG) trading figures, reduced oil and gas prices, lower refining margins, and decreased sales volumes compared to the previous quarter.
Last year, oil and gas prices experienced a surge following Russia’s invasion of Ukraine. However, energy prices have cooled down significantly this year as concerns over shortages eased. Benchmark Brent crude prices averaged $80 a barrel in the second quarter of 2023, compared to $110 a year earlier. Similarly, LNG prices dropped from around $33 to $11.75 per million British thermal units (mmBtu).
As the world’s leading LNG trader, Shell reported that earnings from its flagship division were cut in half compared to the previous quarter, mainly due to a weaker performance in its trading division.
Despite the challenges, Shell made progress in reducing its debt, which amounted to $40.3 billion by the end of the second quarter, down from $44.2 billion three months earlier. This contributed to a decrease in the debt-to-capital ratio, known as gearing, by one percentage point to 17%.
Featured Image: Unsplash
Author Faith Yakubu 
