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Shell announces $4bn share buyback as it posts record first-quarter profits

Shell has announced record first-quarter profits and another $4bn of share buybacks after higher trading earnings and liquefied natural gas production helped offset lower oil and gas prices.

The energy major reported adjusted earnings of $9.6bn, easily surpassing average analysts’ estimates of $8bn.

These were the first quarterly results under chief executive Wael Sawan, a Shell lifer and former head of the company’s oil, gas and renewables businesses, who took the top job in January.

Sawan has promised to focus on performance in a bid to close the valuation gap between Shell and its US rivals, which are valued at much higher multiples of their cash flow.

“We do see a significant undervaluation in the Shell share and we are working hard as a management team to be able to plug that gap,” Sawan said after the results were published.

To help do that, Shell has committed to return at least 20 to 30 per cent of cash flow from operations to shareholders through dividends and share buybacks.

In the first quarter, Shell said it had returned $6.3bn to shareholders through $2bn in dividend payments and $4.3bn of share repurchases, adding that it would buy back another $4bn of shares over the next three months. Shares rose 3 per cent in early trading on Thursday in London.

BP, in contrast, slowed the pace of its share buybacks this week despite exceeding market expectations with a $5bn quarterly profit. It was punished by investors, with shares falling almost 9 per cent on Tuesday after BP announced $1.75bn of repurchases for the next three months, down from $2.75bn last quarter.

Some European oil executives have said the valuation gap is a result of the much bigger capital pools US-listed groups can access, rather than weaknesses in European companies. However, Sawan said that moving Shell’s primary listing to the US was “not on my priority list at the moment”.

Although lower than the $9.8bn profit Shell reported in the final quarter of 2022, the latest results eclipsed the $9.1bn the company made in the first three months of last year when Russia’s full-scale invasion of Ukraine caused oil and gas prices to soar.

Brent crude prices in the first quarter of 2022 averaged $96 a barrel, compared with $81 a barrel in the first three months of this year.

The biggest contributor to earnings in the first quarter was Shell’s integrated gas business, which includes its huge LNG trading operation. Higher LNG production at Shell’s Prelude project in Australia helped offset falling prices, while LNG trading had another strong quarter, delivering earnings for the integrated gas division of $4.9bn.

While that was down from the $6bn the division reported last quarter, it was offset by gains in Shell’s chemical and refined products arm where profits more than doubled to $1.8bn, also helped by strong trading results.

Like BP and TotalEnergies, Shell does not provide a full breakdown of the profitability of its commodity trading operations, but this business is an increasingly important driver of profits.

Analysts at Bernstein Research estimate that trading contributed about $16.6bn, or 20 per cent, of Shell’s earnings before interest, tax, depreciation and amortisation in 2022.

Shell declined to comment on Bernstein’s estimates. Sawan said the trading business was focused on optimising production from “multiple different energy sources and in different locations around the world” to meet demand and maximise returns.

“Trading and more importantly optimisation in general play a critical role in our business model today for conventional energy but I think will play an even bigger role going forward as we look to new energies,” he added.

While Shell’s business remains dominated by oil and gas it is also investing in lower carbon energy sources such as wind and hydrogen to build new revenue streams as governments seek to cut emissions.

Sawan has insisted he does not plan to change that strategy, developed under former chief executive Ben van Beurden, but has also indicated that he would consider boosting oil production rather than continue to let it fall by 1 to 2 per cent per year as Shell previously pledged.

Shell has said it will provide more guidance about its plans and targets at an investor day in the US on June 14.

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