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Shell share price slips as profits fall short

Shell

The Shell share price, along with those of the other major oil companies, has seen its share price decline from the levels we saw earlier this year, as lower oil and gas prices weighed on expectations when it came to revenues, as well as profits

We already had an inkling that Shell’s profits in Q2 might fall short when the company reported that its chemicals division would make a loss earlier this month, and so it has proved with today's results showing a sharp fall in profits. 

Yesterday the impact of the sharp falls in oil and gas prices was laid bare when Norway oil giant Equinor revealed a 57% decline in Q2 profits, when they released their latest numbers, and with BP results next week this is likely to be a familiar theme.

The impact on profits also helps to explain the pivot away from the type of policies pursued by previous CEO Ben van Buerden by new CEO Wael Sarwan when he said earlier this year that "we need to continue to create profitable business models that can be scaled at pace to truly impact the decarbonisation of the global energy system. We will invest in the models that work – those with the highest returns that play to our strengths" in a broadside at the some of the recent reckless narrative and almost hysterical calls to cut back on fossil fuel use whatever the cost.    

With Sarwan striking a much more belligerent, as well as pragmatic tone, when it comes to Shell’s production targets there is a sense that big oil has become less cowed by the political discourse over renewables as well as the threats of higher taxation that has seen the size of their tax take go up.

Today’s Q2 results saw adjusted profits fall to $5.07bn, below expectations of $5.61bn, and well below the $9.6bn in Q1. The company blamed lower prices, volumes as well as margins, along with weaker trading for the slowdown.

As expected, its chemicals division had a difficult quarter sliding to a loss of $468m, although this was offset by a $917m profit on the products side, nonetheless the fall in profitability in this area was quite marked to the tune of 80% year on year. Profits in its integrated gas division fell to $2.5bn, a 34% decline from the same quarter last year and an almost 50% decline from Q1.

Upstream the decline in profits was even more marked, with a 66% decline in adjusted profits to $1.68bn, from the same quarter last year, and a 40% decline from Q1.

On renewables profits also fell to $228m, a 69% decline from the same period last year, and a 41% fall from Q1. The decline in profitability here serves to highlight the problems the big oil companies face with respect to the energy transition and the role the legacy business serves in funding this important area.

On the outlook Shell downgraded its expectations for capital expenditure by $1bn to between $23bn to $26bn, as well as announcing a 15% dividend increase as well as a $3bn buyback program for Q3.

Earlier this month Shell said it was planning to invest $10-15 billion across 2023 to 2025 to support the development of low-carbon energy solutions including biofuels, hydrogen, electric vehicle charging and CCS.


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