Shell Profits Dive, Buy-back Reduced
Anglo-Dutch major Shell reported dismal financial results for Q4 2019 trading, although operationally there were bright spots, particularly in Integrated Gas. It also announced the launch of the next tranche of the share buyback programme, for a maximum of only $1bn up to April 27, 2020, and in further bad news its debt gearing was 29%, above the 25% target.
This is less than the normal quarterly buy-back of $2.75bn but had been flagged up during the Q3 results announcement in October as the trading environment outlook was poor. Since the launch of the programme, Shell has bought back almost $15bn in shares for cancellation, as it continues to absorb the BG acquisition.
CFO Jessica Uhl said during the Q3 results announcement in October that the current economic conditions would, if continued, slow down the company's targeted reduction in gearing and its share buy-back campaign, but that it was determined to keep its high credit rating. Shell had assumed oil would be $65/b last year and $66/b this year but if the current conditions continue, she said the company would be $8bn out of pocket this year and next, relative to assumptions.
On current cost of supplies basis, earnings attributable to shareholders excluding identified items were $2.9bn, down 48% year on year. Including those items, earnings were down 88% to $871mn. Cash flow from operating activities was down 74% at $2.3bn.
Trading environment poor
The results "reflected lower realised oil, gas and LNG prices, weaker realised refining and chemicals margins as well as negative movements in deferred tax positions," Shell said. They were partly offset by stronger contributions from LNG trading and optimisation. LNG sales were up 16% at 20.1mn metric tons (mt); liquefaction was up 5% at 9.21mn mt thanks in part to the long-delayed Prelude project offshore Australia, with a similar total expected for this quarter too; and gas for sale was up 3% at 4.586bn ft³/d. Shell's Egypt offshore assets will be transferred from the Upstream segment to the Integrated Gas segment this quarter.
Upstream production though was flat, with gas down but liquids up, resulting in 2.8mn barrels of oil equivalent/day. The company is partner with US ExxonMobil in the Dutch Nam joint vemture, whose biggest asset is the ill-fated Groningen field, due to close in a few years with billions of euros' value left underground.
Capital expenditure for 2020 is expected to be at the lower end of the $24-29bn range and divestments are expected to amount to more than $10bn over the 2019-20 period.
Q4 identified items included a charge of $508mn related to impairments and negative movements in deferred tax positions of $292mn, both mainly in Australia, partly offset by gains of $718mn related to the fair value accounting of commodity derivatives.