Illustration; Courtesy of Shell

Shell collects $7.7 billion in profit against backdrop of lower energy prices

UK-headquartered energy giant Shell has made strides in pursuing its strategy, which aims to bring more energy to the fore with a reduced emissions footprint. While the oil major tucked multi-billion profit under its belt for the first quarter of 2024, the sum still represents a drop of 19.8% on a year-over-year (y-o-y) basis.

Illustration; Courtesy of Shell

Shell’s drop in profit compared to 1Q 2023 aligns with the downward trend observed in the quarterly results revealed by all oil majors, thanks to the significant decrease in gas prices. In line with this, Eni (€1.58 billion or almost $1.7 billion) and Equinor ($7.53 billion) recorded a 46% downturn in net profits on a year-over-year basis while TotalEnergies ($5.1 billion) experienced a 22% fall in adjusted net profit y-o-y. ExxonMobil and Chevron also felt the impact of the global slump in gas prices, raking in $8.2 billion and $5.5 billion in 1Q 2024, respectively. However, all oil majors have boosted their production levels during the quarter.

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Shell disclosed on Thursday, May 2, 2024, that the income attributable to its shareholders in the first quarter of 2024 rose to $7.4 billion, compared to $474 million in the fourth quarter of 2023 and $8.7 billion in 1Q 2023. Compared with the fourth quarter of 2023, the increase in 1Q 2024 is said to reflect lower operating expenses, higher margins from crude and oil products trading and optimization, and higher refining margins, partly offset by lower LNG trading and optimization margins, and unfavorable tax movements in comparison to the fourth quarter 2023.

Moreover, Shell highlighted that the income attributable to its shareholders in 1Q 2024 also included unfavorable movements due to the fair value accounting of commodity derivatives and favorable differences in exchange rates and inflationary adjustments on deferred tax. These items amount to a net loss of $0.6 billion in the quarter, which compares with identified items in the fourth quarter of 2023 that amounted to a net loss of $6 billion, and included net impairment charges and reversals of $3.9 billion, and unfavorable movements due to the fair value accounting of commodity derivatives.

Wael Sawan, Shell’s Chief Executive Officer, commented: “Shell delivered another quarter of strong operational and financial performance, demonstrating our continued focus on delivering more value with less emissions. We continue to deliver on our Capital Markets Day targets, giving us the confidence to commence another $3.5 billion buyback programme for the next three months.” 

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Furthermore, the company’s adjusted earnings in 1Q 2024 – driven by the same factors as income attributable to the firm’s shareholders and adjusted for those items and the cost of supplies adjustment of negative $0.3 billion – were $7.7 billion, which is higher than $7.3 billion in the previous quarter but lower than $9.65 billion in 1Q 2023. The firm’s adjusted earnings plunged downward due to lower LNG trading and optimization results partially offset by higher volumes, mainly driven by Prelude.

The adjusted EBITDA of $18.7 billion in 1Q 2024, compared to $16.34 billion in 4Q 2023 and $21.43 billion in 1Q 2023, was driven by the same factors as income attributable to Shell’s shareholders. The oil major’s cash flow from operating activities for 1Q 2024 was $13.33 billion, compared to $12.58 billion in 4Q 2023 and $14.16 billion in 1Q 2023.

According to the company, this was primarily driven by adjusted EBITDA, partly offset by a working capital outflow of $2.8 billion and tax payments of $2.6 billion. The working capital outflow mainly reflected accounts receivable and payable movements, and inventory movements due to higher crude and oil product prices. The company’s gearing was 17.7% in 1Q 2024, highlighting a drop from 18.8% in 4Q 2023 and 18.4% in 1Q 2023.

Moreover, the firm’s cash flow from investing activities for 1Q 2024 was an outflow of $3.5 billion, including cash capital expenditure of $4.5 billion and divestment proceeds of $1 billion, while the cash flow from investing activities for 4Q 2023 was an outflow of $5.66 billion, which is higher than $4.24 billion in 1Q 2023.

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At the end of 1Q 2024, Shell’s net debt was $40.5 billion, compared with $43.54 billion at the end of 4Q 2023 and $44.2 billion at the end of 1Q 2023. This is said to mainly reflect free cash flow, partly offset by share buybacks, cash dividends paid to the firm’s shareholders, interest payments, and lease additions. Total shareholder distributions in the quarter amounted to $5 billion, comprising repurchases of shares of $2.8 billion and cash dividends paid to Shell shareholders of $2.2 billion.

The oil major has now completed $3.5 billion of share buybacks disclosed in the fourth quarter 2023 results announcement and announced another share buyback program of $3.5 billion, which is expected to be completed by the second quarter 2024 results announcement. Shell’s total oil and gas production in 1Q 2024 increased by 10% compared with the fourth quarter of 2023, mainly due to lower maintenance at Prelude and Pearl GTL.

The firm’s total upstream production was in line with the fourth quarter of 2023, as higher scheduled maintenance was fully offset by improved performance and new oil delivery. In addition, LNG liquefaction volumes increased by 7% primarily due to lower maintenance at Prelude. On the other hand, renewable generation capacity in operation increased as CrossWind, an offshore wind project in the Netherlands, and Madison Fields, a solar project in the U.S., reached commercial operation.

Production outlook for 1Q 2024 shows signs of increased maintenance

The UK player’s cash capital expenditure for the full year 2024 is expected to be within $22 – $25 billion while the production from the Integrated Gas segment is anticipated to be approximately 920 – 980 thousand boe/d. The company’s LNG liquefaction volumes are forecast to be around 6.8 – 7.4 million tons. This production and LNG liquefaction outlook reflects higher maintenance plans.

Furthermore, Shell’s Upstream production is slated to be about 1,630 – 1,830 thousand boe/d, spotlighting the scheduled maintenance across the portfolio. While marketing sales volumes are expected to be approximately 2,700 – 3,200 thousand b/d and refinery utilization is estimated to be around 87% – 95%, chemicals manufacturing plant utilization is anticipated to be about 72% – 80%.

The oil major’s corporate adjusted earnings are expected to be a net expense of approximately $400 – $600 million in the second quarter and a net expense of approximately $1.7 – $2.3 billion for the full year 2024, excluding the impact of currency exchange rate and fair value accounting effects.