Europe’s biggest oil and gas producer, Shell, reported the second-quarter earnings that surpassed market expectations. The company announced it would buy back an additional $3.5bn (€3.2bn) in shares over the next three months.
British oil giant Shell reported a net profit of $6.3bn (€5.8bn) in the second quarter, surpassing analysts’ expectations of $5.9bn (€5.5bn). This performance was driven by strong oil and gas prices, partially offset by lowered refinery margins. The figure represents a 25% growth from the same quarter last year but a sequential decline of 19%. Despite the positive earnings, Shell’s shares erased early gains and finished 0.5% lower on Thursday.
Amid the strong results, the company announced a further $3.5bn (€3.2bn) share buyback programme for the next three months. CEO Wael Sawan said: “Shell delivered another strong quarter of operational and financial results.”
Shell’s results mirror a similar pattern to BP, which boosted its dividend and maintained a previously announced $3.5bn share repurchase plan following better-than-expected quarterly earnings earlier in the week.
Shell scales back from emission reduction target
In March, Shell updated its energy transition strategy and said it would scale back its carbon emission reduction target to 15% to 20% by 2030, down from the previous 20%. It also scrapped a further carbon reduction goal for 2035.
Shell stated that it: “Further strengthened our leadership position in LNG, with agreement to acquire Pavilion Energy in Singapore, partner in the ADNOC Ruwais LNG project in Abu Dhabi, and taking final investment decision (FID) on the Manatee backfill project in Trinidad and Tobago.”
These investments reflect Shell’s focus on the growing demand for LNG, which has a lower carbon footprint than crude oil. Despite scaling back on the emission target, the company maintained its goal to achieve carbon neutrality by 2050.
Wael Sawan, who took office in January 2023, has shifted his focus to a more profitable fossil fuels business from renewable and hydrogen divisions. Amid reduced profitability and pressures from shareholders, the company announced last year it would cut 15% of jobs in its low-carbon solutions division as part of the CEO’s strategy to boost profit.
In May, Shell announced a plan to cut at least 20% of its workforce in its deals team, stating: “Shell aims to create more value with fewer emissions by focusing on performance, discipline, and simplification across the business.”
Additionally, Shell recently warned it would take an impairment charge of up to $2bn (€1.85bn) due to the sale of its Singapore refinery and the suspension of one of Europe’s largest biofuel plants in Rotterdam. The company expects lower production of fossil fuels, including oil, gas, and LNG, in the third quarter due to scheduled maintenance.
Lower valuation versus the US peers
Following the earnings results of BP and Shell, their US counterparts, including Exxon Mobil and Chevron, are set to report their second-quarter performances later on Friday. Compared to the two British fossil fuel producers, the US oil giants have faced fewer regulatory hurdles and maintain higher price-to-cash ratios. Both Shell and BP have considered themselves undervalued in the European markets relative to their US counterparts. Shell has considered shifting its listing to New York, as indicated in May.
Notably, a potential win for Donald Trump in the upcoming US election could lead to a reduction in corporate tax rates, potentially boosting the profitability of businesses. Trump’s stance on supporting fossil fuels and opposing renewable energy may also benefit these oil companies. This trend could have a ripple effect on European markets.
