Shell Q1 profit drops 28%, but beats expectations

LONDON, May 2 (Reuters) – Shell (SHEL.L), reported a 28% drop in first-quarter net profit to $5.58 billion on Friday, beating analyst expectations, while it held steady the pace of its share buyback programme despite falling oil prices and lower refining margins than last year.

It said it would buy back $3.5 billion worth of shares for the next three months, the fourteenth consecutive quarter of a buyback programme of at least $3 billion.

That contrasts with rival BP (BP.L), which has cut its buybacks this year, saying it will strengthen its balance sheet. Shell’s gearing, a debt-to-equity ratio, of 18.7% is less than BP’s 25.7%.

“The main (opportunity) for me is, at the moment, the ability to buy back my shares,” finance chief Sinead Gorman said in a call.

“If my share price falls (and) I already believe the share price was undervalued, I therefore have an even better ability to allocate capital there and buy back even more shares.”

Shell’s adjusted earnings, its definition of net profit, reached $5.58 billion in the first quarter, above an average forecast of $4.96 billion in a company-provided analyst poll, but below $7.73 billion a year ago.

Shell’s shares were up 2.9% in early trading, outperforming a broader index of energy companies that rose 1.3%.

At a strategy update in March, Shell said it would return more cash to shareholders on expectations of higher liquefied natural gas sales, mainly via buybacks, trimmed its investments through 2028 and raised the prospect of reviewing its chemicals business.

When asked about closing or selling some of those assets, Gorman said the group had given itself until the end of the decade to decide.

Shell on Friday reiterated its reduced annual investment budget of $20-$22 billion for this year.

Its indicative refining margin stood at $6.2 per barrel, down from $12 per barrel a year ago, but up from $5.5 per barrel at the end of last year.

Global benchmark Brent crude prices averaged around $75 a barrel during the January-March quarter, compared with around $87 a year earlier.

Shell said its gas trading business was in line with the previous quarter despite a hit from expiring hedging contracts.

That contrasts with BP, which said that a weak result in its gas trading business weighed on its first-quarter results that missed expectations.

“We were able to sort of route several cargos to more profitable destinations. And I think we were just on the right side of it. Our traders in LNG are doing a superb job,” Gorman said.