Shell back in black in Q1 (update)
Anglo-Dutch major Shell swung to a $5.66bn income attributable to shareholders in the first quarter, up from a $4.01bn loss a year earlier, thanks to $3.4bn in asset sales and higher oil prices. But the contribution from trading and optimisation was significantly below average, it said April 29.
CFO Jessica Uhl told press that the company was now ahead of its disposals goal for the year, which remains at $4bn despite its early success. The sale of assets, lower seasonal gas demand and the major maintenance programmes planned for this quarter, including some carried over from last year, will mean lower production and liquefaction volumes than in Q1, she said.
Its earnings also benefited from $0.4bn in gains from the fair value accounting of commodity derivatives, offset by $0.5bn in redundancy and restructuring charges. But Uhl said it would not write back any of the write-downs from last year, which were made on the basis of the company's long-term outlook.
Adjusted earnings were up 13% at $3.23bn year on year, thanks to higher oil prices and a 4% increase in output to 3.49mn barrels of oil equivalent/day, which more than offset weaker refining and marketing margins.
Free cash flow shrank 37% yr/yr to $7.7bn, owing to increased costs. Shell shaved $4bn off its net debt, however, bringing it to $71.3bn at the end of March, down from $75.4bn from Q4. Its gearing rose, though, from 28.9 to 29.9%.
Shell's integrated gas division, consisting primarily of its LNG activities, generated $1.42bn in adjusted earnings versus $2.14bn a year earlier. The company blamed the decline on higher operating expenses owing to credit provisions and lower marketing and trading contributions.
The Texas winter storm had a net negative effect of $200mn, as strong trading margins were offset by higher costs and provisions. It also gained little from the spike in global LNG prices in January caused by a cold snap, as 80% of Shell's LNG sales are linked to oil prices with a six-month lag. Uhl said that the trading division had contributed less than in the past but praised the company's operational strength and its portfolio.
Upstream adjusted earnings soared to $963mn from $291mn, on the back of recovering oil prices and reduced depreciation. This was offset by a decline in oil products earnings to $877mn from $1.36bn, as jetfuel demand in particular remained subdued. Adjusted earnings from chemicals surged to $730mn from $148mn, however, reflecting higher prices for base chemicals and intermediates.
Uhl said once it had reduced net debt to $65bn – which could be later this year – Shell would resume buy-backs and begin increasing dividends to 20-30% of cash flow from operations. It has declared a dividend of $0.1735/share for the first quarter, up 4% from the previous three months.
CEO Ben van Beurden commented that Shell was "ideally positioned to benefit from recovering demand," helping it to achieve its energy transition goals. Shareholders will vote on the company's energy transition strategy at the upcoming annual general meeting on May 18. Under the strategy, Shell plans to scale back its oil production and refining activities while expanding in LNG, electricity and hydrogen. The shareholder vote is only advisory and non-binding.