Shell Says Trading Results in Gas Stronger, But Oil Weaker

(Bloomberg)

Royal Dutch Shell Plc said its natural gas trading business overcame supply disruptions to post “significantly higher” earnings for the fourth quarter, but the unit that buys and sells oil fared much worse.

It’s the latest in a series of mixed performances from an energy giant that’s under pressure on all sides from activist investors, to pension funds and environmental activists.

Yet it came with a silver lining — the promise that billions of dollars of share buybacks announced last year will proceed “at pace” after securing approval from the company’s board.

Shell has a huge global portfolio of natural gas, which is supplied by pipeline or carried in its liquefied form by ocean-going vessels. However, earnings from the fuel fell short in the third quarter, despite soaring prices, due to production problems in several locations.

That situation improved in the fourth quarter, when “trading and optimization results in integrated gas are expected to be significantly higher,” Shell said in a statement on Friday. The company overcame “ongoing supply issues” to make the most of strong prices for liquefied natural gas.

Shell is the world’s largest trader of LNG, but wasn’t able to take full advantage of the unprecedented surge in the cost of the fuel earlier in 2021. While some of its supply issues have come to an end, in Australia Shell was hit by another power outage to its Prelude export facility, which is expected to remain shut until at least late February.

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Shell’s oil trading and refining unit is track to post a loss, the company said. Earnings were “significantly lower” compared with the third quarter and realized refining margins were hit by extended maintenance at its Scotford refinery in Canada and the impact of Hurricane Ida in the Gulf of Mexico.

“The trading update should lead to double-digit downgrades of consensus earnings and cash flow” estimates for the fourth quarter, Jefferies analyst Giacomo Romeo wrote in a research note. “However, nothing in the update points to structural headwinds that should impact 2022 estimates.”

The company’s B shares fell 0.2% to 1,717.6 pence at 8:23 a.m. in London.

Shell said its fourth-quarter cash flow will be hit by “significant” variation margins — money that the firm received from counterparts in gas and power contracts when prices jumped. That is largely expected, with Chief Financial Officer Jessica Uhl warning at the company’s third-quarter earnings that a $4 billion boost from some commodity derivatives would unwind over the coming months.

The Anglo-Dutch major said it would buy back $5.5 billion of shares “at pace” using the proceeds from asset disposals. The share repurchases, first announced last year and funded from the sale of its Permian-basin oil fields in the U.S., were approved by Shell’s board on Dec. 31. Shell has already bought back $1.5 billion of shares with those funds.

The company didn’t then give a specific buyback timeline and said it would disclose more details when it publishes its earnings on Feb. 3.