Shell to proceed with share buybacks as higher gas prices boost trading

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Oil and gas major Shell said its $7bn share buyback programme, using the proceeds of last year’s sale of its Permian Basin business to ConocoPhillips, would continue “at pace” in 2022 despite a mixed operating performance in the final three months of the year.

The company, which has been under pressure from activists to demonstrate it can generate value for shareholders through the energy transition, announced the return of $1.5bn of the proceeds from the sale to investors in December. The remaining $5.5bn “will be distributed in the form of share buybacks at pace”, it said on Friday.

The trading update followed the first meeting of Shell’s board in the UK since investors backed a proposal to simplify the Anglo-Dutch energy major’s share structure and move its headquarters from the Netherlands to the UK.

Shell, the world’s largest trader of liquefied natural gas, said trading results from its integrated gas business were expected to be “significantly higher compared to the third quarter 2021”, when LNG supply problems forced it to buy from the spot market as gas prices reached record highs.

Shell said it had overcome many of those “supply issues”, though it noted that production volumes had been affected by unplanned maintenance work, particularly in Australia. The company’s huge floating LNG vessel, Prelude, off the coast of Western Australia, was hit by a power outage in early December and is expected to remain shut until at least late February.

Gas prices, already at record levels, rallied further in December as demand for LNG soared, particularly in Europe.

But Shell warned that cash flow from operations in the gas division was likely to be hit by high margin payments it had been required to make due to the price volatility.

In the oil division, refining margins were hit by prolonged maintenance work at Shell’s Scotford refinery in Canada and the continued impact of last summer’s Hurricane Ida in the Gulf of Mexico. Oil trading and refining earnings were expected to be “significantly lower” than in the third quarter, it said.

Shell added that cash flow in its oil division would be affected by about $1bn of outgoing payments for carbon emissions schemes relating to the sale of oil products in Europe and North America.

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

Shell completed the $9.5bn sale of its assets in the US Permian Basin to ConocoPhillips at the start of December. It has promised to return $7bn of the proceeds to shareholders, with the rest to be used to strengthen its balance sheet. The company will publish fourth-quarter earnings on February 3.

Additional reporting by Oliver Ralph

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