Shares in oil and gas giant Shell (SHEL) dropped 2.5% despite the firm posting forecast-beating Q1 earnings. The group also raised its dividend and proposed a further $3 billion share buyback.
Weaker Q2 outlook
For Q1 to March, Shell posted adjusted earnings of $6.9 billion, well above the $6.36 billion consensus. The beat was down to higher oil and gas prices and a strong result from its trading division.
However, for Q2 the company lowered its production forecasts for oil and gas due to the Middle East conflict. Upstream oil production is seen between 1.62 million and 1.82 million barrels of oil versus 1.84 million in Q1.
Integrated gas production is seen between 580,000 and 640,000 barrels of oil equivalent per day versus 909,000 in Q1. Integrated gas earnings were already below market forecasts in Q1 while upstream earnings were just in line.
Among the firm’s other divisions, marketing income beat forecasts at $1.3 billion while chemicals income smashed estimates at $1.9 billion. Adjusted EPS rose from $0.92 to $1.22 while the dividend was raised from around $0.36 to $0.39.
Oil stocks have performed poorly this week, led by falling crude prices as the market factors in an easing of Middle East tensions. That said, WTI is still trading above $90 per barrel and Brent futures are close to $100 per barrel.
Shell clearly benefitted from higher energy prices, but at a cost to production which will be significantly lower in Q2. Given the Middle East disruption, its acquisition of gas assets in Canada looks smarter by the day.
Interestingly, some commentators have suggested the $3 billion quarterly buyback is cause for disappointment given it is $500 million lighter than usual. That seems like a reach, although we aren’t big fans of buybacks anyway, preferring cash in the hand in the form of dividends.
Read the press release here:
https://www.shell.com/investors.html
