Shell: Bumper Profits Shared Out to Investors as Buybacks Accelerate

Written by: Laura Hoy | Hargreaves Lansdown

Net profits more than doubled from the first quarter to $18.0bn. This included a non-cash accounting charge as the group upped its forecast for commodity prices. Excluding this, net profit was 26% higher at $11.5bn thanks to higher oil prices and elevated demand for gas and power.

The group announced a $0.25 second quarter dividend alongside $6bn buyback programme expected to complete in the third quarter. 

Shares were broadly flat following the announcement.

Shell’s accelerating its share buybacks after another quarter of bumper profit growth as the energy sector continues to ride high on the supply and demand imbalance caused by the crisis in Ukraine. Strong oil prices are driving Shell’s bumper performance and the group’s pledged to share more than 30% of the windfall with investors. 

The good times are unlikely to last forever, oil prices tend to wax and wane with the economy so we could see a cooling in the years ahead. So we’re pleased to see Shell funneling some of that excess cash into its Renewables business in a bid to keep up with the energy transition. However the bulk of Shell’s spending power went to legacy oil and gas which underscores the group’s long-term strategy when it comes to the energy transition.

Shell’s taken a different approach then peers, focusing more on managing lower-impact  power solutions for customers rather than ramping up renewable power generation capacity. This includes things like expanding into lower-carbon fuels investing at pace with demand rather. Renewable power generation will be a part of the strategy, but it’s not the lynchpin. This may not appease the growing number of investors who are becoming more focused on environmental metrics, which would put the group’s ESG credentials below peers who are going all-in. But from a financial standpoint it looks like a wise strategy as returns from renewables are yet unproven and demand for the black stuff is likely to remain elevated in the medium term.

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