Shell under fire over ‘outrageous’ profits after boost from soaring oil prices

Susannah Streeter, chief investment strategist at Wealth Club, said: “The escalating conflict involving Iran and the wider Middle East is proving to be a double-edged sword for Shell, severely disrupting LNG volumes while simultaneously lifting energy prices and creating more profitable trading conditions. The spikes in volatility and scorching prices ignited by the conflict have sharply increased activity for its trading arm, and boosted production margins, but at the same time the company is bracing for fallout from the damage wreaked to vital infrastructure in the region. For now though it’s cashing in on the surge in prices. Shell’s underlying profits, measured by adjusted earnings rose approximately 24% year-on-year from $5.6 billion a year previously- beating expectations of $6.36 billion.

“Right now, the closure of the Strait and the energy crunch are benefiting the bottom line. But there is weakness in these figures with gas production down around 4% and management explicitly warned that second-quarter volumes would be sharply lower.

“This is because of Iranian strikes on the huge production sites in Qatar with the Ras Laffan complex and the Pearl GTL facility hit. Work on restoring output is expected to take at least 12 months and the Qatari energy minister had previously warned that it could be a multi-year repair project. Given that LNG is one of Shell’s most profitable divisions, the scale of the reduction is significant.

“This is all having an impact on Shell’s buy-back programme. Although the surge in energy prices is likely to be why the company felt confident enough to launch another $3 billion share buyback programme despite net debt rising and free cash flow falling. However, the company is slowing the pace of quarterly buybacks from $3.5 billion previously to $3 billion. So it’s a sign that more caution is creeping in and that management is still keeping an eye on how the conflict will unfold rather than aggressively expanding returns to shareholders further.”