Shell reports record quarterly profits as Ukraine war roils energy markets

Shell recorded its highest ever quarterly profits as it capitalised on the volatility in global energy markets following Russia’s invasion of Ukraine.

Adjusted earnings at Europe’s largest oil company rose to $9.1bn in the first three months of the year, almost three times the $3.2bn it recorded a year earlier.

That beat average analyst estimates of $8.7bn and was up from $6.4bn in the final three months of 2021.

Shell’s results complete a set of bumper first-quarter earnings for the world’s biggest oil and gas companies. BP reported underlying profits of $6.2bn this week, its highest since 2008, while Norway’s state-controlled Equinor recorded its highest ever quarterly pre-tax earnings of $18bn.

“The war in Ukraine is first and foremost a human tragedy but it has also caused significant disruption to global energy markets and has shown that secure, reliable and affordable energy simply cannot be taken for granted,” said Shell chief executive Ben van Beurden.

Shell’s profits were driven by its oil production and integrated gas divisions, which generated $4.1bn and $3.5bn in adjusted earnings respectively, and by a strong performance from its traders.

“Favourable trading conditions” meant earnings from what Shell calls trading and optimisation were similar to the previous quarter for gas and “significantly higher” for oil products. That helped it reduce net debt to $48.5bn from $52.6bn at the end of last year.

Shell is the world’s largest trader of liquefied natural gas and a big trader of oil. Prices for LNG, in particular, have soared as European efforts to reduce dependence on piped gas from Russia have increased competition for cargoes of the fuel. Shell produced 8mn tonnes of LNG in the first quarter and sold 18.3mn tonnes, it said.

Shell had less exposure to Russia than European rivals BP and Total. Before the war, Russia was expected to contribute 5 per cent of Shell’s total oil and gas production in 2022, compared with 16 per cent for Total and 28 per cent for BP, according to investment bank Jefferies.

Shell’s decision to divest its Russia business, including a 27.5 per cent stake in the Sakhalin-2 liquefied natural gas project with Gazprom, resulted in post-tax charges of $3.9bn, the company said.

The UK-headquartered supermajor said it had completed $4bn of the $8.5bn in share buybacks announced for the first half of the year and expected shareholder distributions for the second half of 2022 to be in excess of 30 per cent of cash flow from operations. Cash flow from operations for the first quarter was $14.8bn.

“The bottom line here is that Shell continues to generate operating cash flows and free cash flows well in excess of any of its peers,” said Biraj Borkhataria, analyst at RBC Capital Markets.

BP’s bumper profits this week led to renewed calls from opposition politicians in the UK for a windfall tax on oil and gas companies’ profits. The huge revenues at Shell will do the same.

As with BP, Shell does not disclose how much of its earnings were generated in the UK. Shell was the sixth-largest gas producer in the UK’s North Sea last year, according to data from consultancy Rystad Energy.