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Profits at Shell and TotalEnergies declined in the second quarter due to lower gas and oil prices. The impact of Russia’s war in Ukraine on energy markets has faded, resulting in a decrease in earnings.
In the second quarter, Shell reported adjusted earnings of $5.1 billion, which missed analysts’ estimates of $5.6 billion. This is less than half of the record $11.5 billion reported during the energy crisis peak last year, and in line with the $5.5 billion in the same period in 2021.
Total reported that adjusted net income dropped to $5 billion, a 49% decrease compared to the same period last year.
Despite the decline in profits, the stock prices of both companies remained steady on Thursday.
The significant drop in earnings for these oil companies indicates that the oil and gas industry may be transitioning from 18 months of high profits following Russia’s invasion of Ukraine.
Total revealed a decrease in prices for liquefied natural gas (LNG), which averaged $10/mmbtu in the second quarter. This is down from an average of over $50/mmbtu in August last year.
Shell’s profits saw the largest decline in its LNG division, with earnings almost halving to $2.5 billion from $4.9 billion in the first quarter.
Shell attributed the lower profits to reduced prices and weaker trading performance in the integrated gas division.
Analysts at RBC Capital Markets described the numbers as disappointing and highlighted a $468 million loss in Shell’s chemicals division due to weak demand.
These quarterly results are the second under Shell’s CEO Wael Sawan, who took the position in January. Sawan has emphasized improving performance to close the valuation gap between Shell and its US rivals.
Sawan recently outlined a plan for Shell to cut costs, increase shareholder payouts, and allocate a higher proportion of spending to oil and gas.
While Shell will continue investing in clean energy projects, Sawan stated that the company will focus on energy trading and supplying low carbon products. Shell may explore partnerships in renewable power generation and consider selling part of its existing power portfolio to outside investors.
According to Sawan, “The energy transition is going to require unprecedented partnerships to take place.”
Shell has reduced its capital spending plans, with current guidance set at $23 billion to $26 billion for 2023, down from the previous range of $23 billion to $27 billion.
The company has increased its quarterly dividend by 15% to $0.33 per share and adjusted its share buyback plans. Shell plans to repurchase $3 billion worth of shares in the third quarter and $2.5 billion in the fourth quarter.
Similar to its competitors, Shell has utilized its record profits from the past 18 months for a substantial share repurchasing scheme. The company distributed $26 billion to shareholders last year, including $18 billion in share buybacks, which amounted to nearly 10% of its market value.
Total has raised its interim dividend by 7.25% to €0.74 per share and committed to $2 billion in share buybacks in the third quarter.
Earnings from ExxonMobil are expected to be published on Friday, followed by BP next week.
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