Shell fends off calls to return cash to shareholders after beating first-quarter forecasts

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Shell deflected pressure to increase returns to shareholders, after a strong start to the year led analysts to suggest the oil major could improve on the $5bn it currently spends each quarter on dividends and share buybacks.

Wael Sawan, Shell’s chief executive, spoke after the company posted profits nearly 20 per cent higher than expected in the first quarter of 2024, together with a near 10 per cent fall in net debt and an underlying cash flow that was significantly higher than that of its rival, ExxonMobil.

He said the results of his efforts to cut costs and focus Shell’s operations were “starting to play through into a very healthy balance sheet” but that shareholder returns were at “at the top end of what we have guided, [and at] an appropriate balance for our financial framework.”

“This is our tenth quarter in a row that we have been buying back $3bn-plus [of shares]. This is about a steady ability to be able to do this over multiple quarters. And it’s not just that we want to be buying back at a $90 or $85 oil price, we need to also think about how we can be buying back shares at $50 [oil]. So it is a multi-quarter approach, rather than trying to hit for a grand slam in one quarter,” he said.

Shell is facing pressure to increase its pay outs, and to move its listing from London to New York, in a bid to close the valuation gap with its US rivals.

Shell’s operating cash flow was now running at a yearly rate of more than $60bn, said Lydia Rainforth, an analyst at Barclays, adding that “over time, there is room for Shell to deliver increases in the dividend on an underlying basis”.

Biraj Borkhataria, an analyst at RBC Capital Markets, noted that Shell had a larger first quarter operating cash flow than rival Exxon, after adjusting for working capital, and a similar capital expenditure budget. “The valuation disconnect continues to look extreme to us,” he said, adding that Shell might choose to increase its returns to shareholders in the second half of the year.

Shell posted an operating cash flow in the first quarter of $13.3bn, compared with a consensus forecast of $13.7bn and down 6 per cent year on year.

Christyan Malek, an analyst at JPMorgan, said that Shell’s improved cash flow “should bring the merits of a US listing into clear focus” given that ExxonMobil’s valuation was twice that of Shell’s.

But Sawan said that moving the company’s listing “is not currently a live discussion”, though he said the board would keep such a move under review. He said his focus until the end of 2025 was on improving performance, and that after that there were “multiple levers” to unlock more value beyond a change of listing.

Shell said adjusted earnings were $7.7bn in the first quarter of 2024, well ahead of a consensus forecast of $6.5bn, but down 19 per cent from the same period last year as gas prices fell back after Europe’s energy crisis. Net debt fell to $40.5bn from $44.2bn a year ago.

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In morning trading, Shell’s shares rose just under 1 per cent in London to £28.45.

Shell reported strong profits in its gas business, accounting for 40 per cent of its earnings. The company said that its rate of production of liquefied natural gas was at the top end of its earlier guidance. Its total oil and gas production was up 10 per cent compared with the final quarter of 2023 because of lower maintenance in Australia and Qatar.