Shell Integrated Gas Earnings up 79%: Update

(Adds comments from press conference)

Anglo-Dutch major Shell reported November 1 a 79% year-on-year increase – excluding exceptionals – on its Q3 profit in its Integrated Gas division, of $2.292bn. With exceptionals included the earnings were up 74% at $2.116bn.

Q3 identified items primarily reflected impairments of $131mn, mainly related to Shell’s investment in a joint venture. Other identified items mainly comprised a loss of $48mn related to the fair value accounting of commodity derivatives, as well as a gain of $26mn from the sale of assets.

Compared with the Q3 2017, Integrated Gas earnings, excluding identified items, benefited from higher realised oil, gas and LNG prices, as well as higher trading margins from LNG cargo diversions. This was partly offset by a decrease in production, which was 8% lower than in the third quarter 2017, mainly owing to higher maintenance activity. LNG liquefaction volumes were 3% lower, largely driven by divestments. 

For Shell as a whole, profits on a current cost of supplies basis attributable to shareholders – excluding identified items – were $5.6bn, up 51% on the $4.1bn seen in Q3 2017. Net income was up 43% at $5.84bn. Debt gearing is continuing to fall and is now at 23.1%; Shell has also spent $2bn on share buy-backs and announced November 1 a second programme for $2.5bn.  The company’s intention is to buy back at least $25bn  of its shares by the end of 2020, subject to further progress with debt reduction and oil price conditions.

CEO Ben van Beurden said: "Good operational delivery across all Shell businesses produced one of our strongest-ever quarters, with cash flow from operations of $14.7bn, excluding working capital movements. Our strong financial performance allowed us to cover the cash dividend, interest payments, share buybacks and to further pay down debt."

CFO Jessica Uhl told journalists on a conference call that the Prelude field was on track to start production by the end of the year, which is a long time after it was originally expected and a year later than expected a few years ago.

Separately, she explained that a $2bn impairment of a Canadian shale asset had been partly recovered owing to the way the geology was performing. The breakeven price has halved for that asset, she said; and with the positive investment decision for LNG Canada, the field’s value has also risen. So there was a partial write-back.

She said the capital expenditure did not need to move above the $25-$30bn range, with a lot of that coming in the final quarter as LNG Canada ramps up and bonus payments fall due. “We get more for our money now than we did in the past,” she said, as one journalist wondered if the company was spending enough to maintain output growth.

She did not deny that the company’s reserves replacement ratio was lagging those of its peers but the fact that not all the reserves Shell has are booked as such might be the consequence of regulations rather than failure to plan ahead: they are there, in pre-salt Brazil, north American shale, and the Gulf of Mexico, she said.

And she said Shell had been preparing for Brexit for a couple of years and was satisfied after scenario planning that it had the scale and financial flexibility needed to meet the challenge to its banking and supply chains. “We do not see Brexit posing any material impact,” she said.