Shell Pledges Extra Buybacks, Hikes Dividend as Profit Drops

(Bloomberg) — Shell Plc’s second-quarter profit fell from the highs seen last year but the company pledged extra share buybacks and raised its dividend.

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The results are broadly in line with industry peers Chevron Corp. and Equinor ASA, where the decline in oil and gas prices dragged earnings lower even as production increased. Shell also reported a drop in the performance of its gas-trading unit, which in previous quarters generated big returns diverting cargoes of liquefied natural gas to Europe.

The London-based oil major said it would buy back $3 billion worth of shares over the next three months and at least $2.5 billion after that. That’s slightly ahead of the $5 billion of repurchases pledged for the second half. Shell also increased its dividend as previously announced.

“Today we are delivering on our capital markets day commitment of a 15% dividend increase,” Shell Chief Executive Officer Wael Sawan said in a statement. ”We are going further on our buyback guidance.”

Shares of the company fell 2.02% to 2,348.00 pence as of 8:37 a.m. in London.

Analysts’ assessments of the earnings ranged from muted to negative. The buyback was in line with expectations but Shell’s operational guidance suggested some downside to consensus estimates for the third quarter, said Jefferies analyst Giacomo Romeo.

Adjusted net income in the second quarter was $5.07 billion, down from $9.64 billion a year earlier and missing the average analyst estimate of $5.61 billion. Earnings from the integrated gas segment dropped sharply “due to seasonality and fewer optimization opportunities,” amid lower prices, the company said.

Shell’s new CEO has continued his predecessor Ben van Beurden’s commitment to grow shareholder payouts, which were slashed in the early stages of the coronavirus pandemic. Sawan is also trying to narrow the valuation gap with Chevron and Exxon Mobil Corp. while refocusing the company on the higher returns of its core oil and gas business.

The company reduced the top end of its projected range on capital spending by $1 billion to $23 billion to $26 billion. Sawan, who came in as CEO this year, has said he’s going to maintain a “ruthless” financial discipline. Shell’s net debt fell by almost $4 billion to $40.31 billion at the end of the quarter, down from $79 billion in 2019.

TotalEnergies SE’s earnings also missed the average analyst estimate, but the company maintained its shareholder distribution plan. Spain’s Repsol SA announced a continuation of its share buybacks as its adjusted net income was better than expected.

(Updates with analyst comment in sixth paragraph.)

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