Shell has reported a better-than-expected 70% surge in half-year underlying earnings to $16.75 billion (£12.55 billion), driven by its best quarterly performance in four years despite what it described as “severe disruption” in oil and gas markets due to the Iran war.
Second-quarter results beat forecasts
The FTSE 100 giant posted underlying earnings of $9.84 billion (£7.37 billion) for the three months to the end of June, more than double the $4.26 billion (£3.19 billion) a year earlier and sharply up from $6.92 billion (£5.18 billion) in the previous quarter. The result exceeded analysts' expectations as Shell's oil traders capitalised on highly volatile crude prices.
Underlying earnings at its chemicals and products unit, which includes oil trading, jumped to $2.88 billion (£2.15 billion) from $118 million (£141 million) a year ago, helping offset a 31% drop in gas production due to an Iranian attack on its Qatar gas-to-liquids plant at the start of the conflict.
CEO and CFO comments on disruption
Chief executive Wael Sawan said: “Shell’s operational performance enabled very strong results during another quarter of severe disruption in global energy markets, as we worked hard to provide critical energy supplies and products to our customers.”
Shell has profited from trading on oil price swings, with Brent crude surging as high as $120 a barrel at one stage before dropping to pre-war levels and back above $90 this week amid fraught negotiations between the US and Iran. Its oil trading division had already seen earnings more than quadruple year on year in the first quarter.
However, Shell’s Pearl GTL site in Qatar stopped production in March after being hit during attacks, and LNG facilities in the country partly owned by Shell were also affected. The group expects to take a year to repair the damaged Pearl site and get it back online.
Refinery utilisation and shipping disruption
The group said it was ensuring its oil refineries worked at full capacity, with record utilisation of 102% and global refining jet volumes up 20% year on year.
Chief financial officer Sinead Gorman said the group was “focusing on delivering for our customers” but added that it was vital to get the Strait of Hormuz back open for ships. The Strait has been effectively blocked since the war began on February 28, with only a brief reopening during an interim peace deal in June, but has been blocked again amid renewed hostilities. There has also been disruption to the Red Sea after attacks by Houthi rebels this month, leaving only the Suez Canal completely open for Gulf oil movement.
Ms Gorman said the industry was working hard to offset shipping disruption, but added that “as this gets more prolonged… the levers that the industry has to pull get less”. “We’re focused on our operational performance because that’s something we can control,” she said.
Share buybacks and market reaction
In its half-year results, Shell said it would hold share buybacks at the recently reduced rate of $3 billion (£2.24 billion) a quarter in the three months to September. Shares rose as much as 2% in early morning trading.
Derren Nathan, head of equity research at Hargreaves Lansdown, said: “One consequence of the disruption in the Middle East is higher realised prices. Another is heightened volatility on which the group’s trading division thrives. Adding in new production in Brazil and the Gulf of America, and refineries running at full capacity has led to a very strong performance on the bottom line.”
