Shell Earnings Beat Market Views Despite Lower Gas Trading, Refining Margin Hit — 2nd Update

By Christian Moess Laursen

Shell became the latest European energy major to beat expectations, although profit roughly halved on quarter due to lower refining margins and a slump in integrated gas trading.

The British energy major's adjusted earnings were $6.29 billion for the second quarter, down from $7.73 billion in the first quarter, it said on Thursday. Analysts had expected $6.01 billion, according to a Vara Research poll.

However, its profit measured on a current cost of supplies basis--a figure similar to the net income that U.S. oil companies report--nearly halved on quarter to $3.75 billion, weighed by lower liquefied natural-gas trading and refining margins. Still, compared with the second quarter last year, profit rose 7.4%.

Key drivers were better-than-expected contributions from the upstream and marketing segments, RBC Capital Markets analyst Biraj Borkhataria wrote in a research note, as the units beat views by 9% and 32%, respectively.

Shell is the latest European oil-and-gas major to perform better than analysts had expected, following its London rival BP, Italy's Eni and Portugal's Galp.

Analysts had forecast the sector would deliver lower profit this quarter led by weaker margins as refineries have been hit by mediocre demand for gasoline in some parts of the world, squeezing downstream earnings. U.S. peer Exxon Mobil--which issues quarterly results Friday--warned in July that weaker refining margins will cut its earnings by $1.1 billion to $1.5 billion.

Shell's adjusted earnings at both its downstream business--comprised by the marketing and the chemicals and products segments--and the integrated gas business also beat expectations. The latter saw a decline that reflects a lower contribution from trading due to weaker realized prices and volumes, Shell said.

The FTSE 100-listed company booked an impairment of nearly $1.5 billion related mainly to the paused construction of its biofuels facility in Rotterdam--one of Europe's largest--as well as the sale of its chemicals refinery in Singapore.

The halted construction was due to a weakened European biofuels market, which nevertheless has high potential according to Shell.

Shell, the world's largest liquefied natural-gas trader, produced 6.9 million metric tons of LNG, while total integrated-gas production was 980,000 oil-equivalent barrels a day. The unit's total output fell by 1% on quarter.

Its upstream output--the extraction of oil and gas--was 1.78 million daily oil-equivalent barrels, down 4.8% on quarter.

This quarter's output reflects scheduled maintenance across the portfolio, Shell said. This is seasonally typical as heavy maintenance in the Northern Hemisphere is easier to perform during summer months.

For the third quarter, Shell targets LNG volumes of between 6.8 million and 7.4 million tons, an integrated-gas production between 920,000 and 980,000 barrels a day and an upstream output of between 1.58 million and 1.78 million daily barrels.

Meanwhile, Shell's cash flow from operations--another closely watched metric as it supports Shell's buyback pledge--rose slightly to $13.51 billion, also beating analysts' expectations.

It declared a quarterly dividend of 34.40 U.S. cents and said it would buy back $3.5 billion of shares during the third quarter, the same as during the previous three months.

Shares were up 1.5% at GBP28.82 at 0935 GMT.

Write to Christian Moess Laursen at christian.moess@wsj.com

(END) Dow Jones Newswires

August 01, 2024 06:00 ET (10:00 GMT)

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