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Shell (SHEL) reported stronger-than-expected earnings for the second quarter of 2024, becoming the latest European energy major to surpass analyst forecasts. However, the company's profit nearly halved from the previous quarter, driven by lower refining margins and a decline in integrated gas trading.
Financial Performance
Shell's adjusted earnings for the quarter amounted to $6.29 billion, down from $7.73 billion in the first quarter. Despite the decline, the results exceeded the $6.01 billion anticipated by analysts, according to a poll conducted by Vara Research. On a current cost of supplies basis—a measure comparable to the net income reported by U.S. oil companies—Shell's profit fell to $3.75 billion, a significant drop from the previous quarter but a 7.4% increase compared to the same period last year.
The company's performance was bolstered by better-than-expected contributions from its upstream and marketing segments. These segments exceeded analysts' expectations by 9% and 32%, respectively, according to RBC Capital Markets analyst Biraj Borkhataria.
Sector Context and Market Conditions
Shell's better-than-expected results follow similar performances from other European oil-and-gas majors, including BP, Eni, and Galp. The sector had been forecasted to deliver lower profits for the quarter due to weaker refining margins, which were impacted by subdued demand for gasoline in certain regions. U.S. peer Exxon Mobil had also cautioned that weaker refining margins would reduce its earnings by $1.1 billion to $1.5 billion for the quarter.
Despite these challenges, Shell's downstream business—which includes marketing and the chemicals and products segments—and its integrated gas business both reported earnings that beat expectations. However, the integrated gas segment saw a decline due to weaker realized prices and volumes, reflecting the current market challenges.
Operational Highlights and Future Outlook
Shell, the world's largest trader of liquefied natural gas (LNG), produced 6.9 million metric tons of LNG during the quarter, while total integrated gas production was 980,000 oil-equivalent barrels per day, a slight decrease from the previous quarter. The company's upstream production, which includes the extraction of oil and gas, was 1.78 million daily oil-equivalent barrels, down 4.8% quarter-over-quarter. This decline was attributed to scheduled maintenance, which is typically heavier during the summer months in the Northern Hemisphere.
Looking ahead, Shell projects LNG volumes between 6.8 million and 7.4 million tons for the third quarter, integrated gas production between 920,000 and 980,000 barrels per day, and upstream output between 1.58 million and 1.78 million daily barrels.
Shareholder Returns
Shell's cash flow from operations, a crucial metric for supporting its share buyback program, rose slightly to $13.51 billion, surpassing analyst expectations. The company declared a quarterly dividend of 34.40 U.S. cents and announced plans to repurchase $3.5 billion of shares in the third quarter, consistent with the previous quarter's buyback amount.
