LONDON (Alliance News) - Royal Dutch Shell PLC on Thursday announced a share buyback worth USD25 billion, though the oil company has missed expectations despite a sharp rise in earnings.
FTSE 100-listed Shell also lowered its production guidance for the third quarter in both its Upstream and Integrated Gas businesses, partly due to its current divestment programme.
Shell 'A' shares were 2.1% lower early Thursday at 2,602.50 pence each, while 'B' shares were 2.5% down at 2,657.50p.
Shell launched a buyback of "at least" USD25 billion for the period 2018 to 2022. For the first tranche of this, Shell is to purchase shares up to USD2 billion of shares over a period of three months.
Shell, which is London's largest company by market capitalisation, announced a second-quarter dividend of USD0.47 per share, in line with last year and also in line with consensus.
"This move complements the progress we have made since the completion of the BG acquisition in 2016, to reshape our portfolio through a USD30 billion divestment programme and new projects, to reduce net debt, and to turn off the scrip dividend," said Chief Executive Ben van Beurden.
"Our financial framework remains unchanged. Our free cash flow outlook and the progress we have made to strengthen our balance sheet give us the confidence to start our share buyback programme," he added.
Free cash flow for the quarter was USD9.53 billion, well below the USD12.16 billion a year prior, though up from the first quarter's USD5.18 billion. In the first half, free cash flow was USD14.71 billion, down from USD17.34 billion.
Divestments in 2018's second quarter stood at USD2.50 billion, down from USD9.47 billion a year ago and USD1.29 billion in the first quarter. So far this year, the figure is at USD3.79 billion, compared to USD9.50 billion a year before.
Shell has been selling off significant assets of late. Recent sales include two Norwegian fields for USD556 million and a plan to sell a stake in a Malaysian project for USD750 million.
In early May, Shell sold its entire stake in Canadian Natural Resources for USD3.3 billion, while in April it sold its Argentinian downstream business for USD950 million. In March, Shell disposed of its 20% stake in Iraq's West Qurna 1 oil field for USD406 million, and the same month the Financial Times reported Shell was to leave New Zealand, selling its assets there for USD578 million.
Divestments in 2017 include totalled USD17.34 billion - this compares to significantly lower figures in 2016 and 2015 of USD4.98 billion and USD5.54 billion, respectively.
Current cost of supplies earnings attributable to shareholders including identified items for the three months to June 30 rose sharply to USD5.23 billion from just USD1.92 billion last year, up to USD10.93 billion for the first half of 2018 overall from USD5.30 billion a year prior.
However, this sharp rise was below analyst consensus, which had expected CCS earnings for the second quarter to come in at USD5.96 billion.
Second-quarter oil and gas production was 3.44 million barrels of oil equivalent per day, a 5.4% increase on the underlying performance of last year.
In Shell's Integrated Gas business, CCS earnings excluding items were USD2.31 billion, almost double the prior year's figure of USD1.95 billion but lower than the first quarter's USD2.44 billion. Likewise the figure missed consensus, which had expected CCS earnings excluding items for the segment of USD2.37 billion.
Earnings were boosted by higher prices in oil, gas, and liquefied natural gas as well as higher volumes - total production for sales rose 16% year-on-year to 954,000 barrels of oil equivalent a day.
However, higher operating expenses partly offset these positives, and capital investment fell 3% year-on-year to USD804 million.
Production in the division is guided to be reduced by between 40,000 and 70,000 barrels of oil equivalent a day for the three months to September year-on-year due to asset sales and maintenance work.
Turning to Shell's Upstream operations, CCS earnings excluding items soared to USD1.46 billion from USD339 million year-on-year, though they have, like Integrated Gas, fallen from the first quarter's figure of USD1.55 billion.
Consensus for the division from analysts had been for CCS earnings excluding items of USD2.01 billion.
Upstream production in the second-quarter was 2.5 million barrels of equivalent per day, down 7% year-on-year.
Looking forward, third-quarter production is again expected to be lower due to divestments, field decline, and maintenance. It is expected to be between 210,000 and 240,000 barrels of equivalent per day lower year-on-year. In the third-quarter of 2017, Upstream production was 2.7 million boed.
Lastly, Downstream CCS earnings excluding items were USD1.66 billion, 34% lower year-on-year and below the USD1.77 billion in the first quarter. Consensus had expected a figure of USD2.07 billion.
Shell Downstream earnings were hit by lower trading results, the company said, higher expenses, and the impact of foreign currency movements.
Commenting, Hargreaves Lansdown analyst Nicholas Hyett said: "Having nursed the dividend through the bad times, a resurgent oil price means Shell's now got the cash to reward shareholders for their loyalty, starting with a USD25 billion buyback at USD2 billion a quarter. It's been a long time coming.
"The buyback will probably be taken as a sign of confidence, but these numbers are actually a bit disappointing"
Hyett continued: "Earnings are behind market expectations and operating cash flows have gone backwards. That basically reflects the fact the recovery in earnings have been driven by a higher oil price, with production more or less flat and costs actually rising."
