Shell puts in decent quarter, begins next round of share buybacks

Royal Dutch Shell put in a decent third quarter performance, it revealed on Thursday, with income attributable to shareholders rising 43% to $5.84bn compared to the same period last year.

The FTSE 100 oil giant said its current cost of supplies (CCS) earnings excluding identified items was 38% higher at $5.79bn.

Of that, integrated gas operations represented $2.29bn, up from $1.28bn year-on-year, with upstream rising to $1.89bn from $0.56bn.

Downstream slipped to $2.01bn from $2.67bn, while corporate was responsible for outgoings of £0.4bn, widening from $0.3bn at the same time last year.

CCS earnings attributable to shareholders were ahead 51% at $5.57bn, with the company’s cash flow from operating activities increasing 59% to $12.09bn.

Basic earnings per share improved 40% to 70 US cents, with basic CCS earnings per share rising 36% to 68 cents.

The Shell board declared a dividend precisely in line with that paid at the same time last year, of 47 cents.

“Good operational delivery across all Shell businesses produced one of our strongest-ever quarters, with cash flow from operations of $14.7bn, excluding working capital movements,” said Royal Dutch Shell’s chief executive officer Ben van Beurden.

“Our strong financial performance allowed us to cover the cash dividend, interest payments, share buybacks and to further pay down debt.”

Van Beurden said the company’s strategy remained “on track”.

“We have completed the first tranche of share buybacks, in line with our intention to purchase $25bn of our shares by the end of 2020, and today I’m pleased to announce the second tranche.

“Meanwhile, the transformation of our portfolio continued, with further divestments of non-strategic assets and the final investment decision on LNG Canada.”

On the operational front, in integrated gas, Shell and its partners announced a final investment decision on LNG Canada in October, in which Shell’s interest is 40%.

Construction had now started, with first LNG expected before the middle of the next decade.

In upstream, during the quarter Shell and its partner Chevron won a 35-year production-sharing contract for the Saturno pre-salt block located off the coast of Brazil in the Santos Basin, where Shell’s interest is 50%.

Shell also announced the sale of its 36.8% non-operating interest in the Danish Underground Consortium to Norwegian Energy Company in October, for a consideration of $1.9bn, with an effective date of 1 January 2017.

Also in October, Shell and its partners announced first production at the Lula Extreme South deep-water development in the Brazilian pre-salt Santos Basin, where Shell pre-unitisation interest is 25%.

Downstream

In downstream, Shell completed the sale of its downstream business in Argentina to Raízen in October.

The business acquired by Raízen would continue the relationship with Shell through various commercial agreements, including long-term brand licence agreements as well as products supply and offtake contracts.

Royal Dutch Shell also announced the start of trading in the second tranche of its share buyback programme on Thursday, which it had previously announced on 26 July.

The company said its intention was to buy back at least $25bn of its shares by the end of 2020, subject to further progress with debt reduction and oil price conditions.

On 19 October, the firm completed the first tranche of its share buyback programme, in which it repurchased 60,844,806 A ordinary shares for an aggregate consideration of $2bn.

The maximum number of ordinary shares which may be purchased by the company under the second tranche would be 773,155,194, which was the maximum under the authority granted by shareholders at the company's 2018 annual general meeting, minus the number of ordinary shares purchased in the initial tranche.

“The purpose of the second tranche is to reduce the issued share capital of the company to offset the number of shares issued under the scrip dividend programme and to significantly reduce the equity issued in connection with the company’s combination with BG Group,” the Shell board explained in its statement.

“All shares repurchased as part of the second tranche will be cancelled.”