Shell Profits Dip, but Integrated Gas Rises (Update)
(Adds comments from press conference with CFO)
Anglo-Dutch Shell’s current cost of supplies (CCS) earnings in Q1 were $5.3bn, down from Q1 2018’s $5.4bn, it said May 2. But its Integrated Gas division managed to turn in a positive result, despite the headwinds in the market. Overall, CFO Jessica Uhl told journalists, Shell was "well on the way to becoming a world-class investment case."
Low European and Asian spot prices did not affect the bulk of its LNG sales on long-term, oil-indexed contracts which in Q1 were still reflecting high crude in Q4 2018, she said. Asked if this meant a drop in profits was on the cards in Q2, she said that while long-term contract prices would be lower as oil weakened, that was not the whole story: its overall portfolio would ensure "comparable cash flow over the year," she said. Only 10%-20% of its gas is sold at spot prices and trading capability allowed it to maximise value.
She also told NGW that the team working off Australia on the Prelude floating liquefaction project, now not expected to load its first cargo until some time this quarter, was not in a race against time. The important thing for an asset like this, with decades of active life ahead of it, is to get off to a robust, safe start, she said. Condensates have loaded and she said there was not an issue with the reservoir itself. She did not say why the project was being held back though: it has been due on stream for a year or more.
Integrated Gas earnings excluding identified items rose from $2.44bn to $2.57bn, despite lower Asian and European spot prices, less gas production and lower LNG tonnage both produced and sold. It said that higher realised LNG and gas prices, increased contributions from LNG portfolio optimisation and lower depreciation offset these negatives. In addition, there was a positive impact of $60mn relating to an accountancy rule change, IFRS 16.
Total production available for sale was down 12% at 8.51mn boe/d. Liquids production available for sale was down 35% at 137,000 /d; gas production available for sale was down 6% to 4.14bn ft³/d, partly owing to the transfer of the Salym field from Integrated Gas to Upstream. Liquefaction volumes fell by 2% to 8.74mn mt, mainly owing to higher maintenance and divestments, partly offset by increased feedgas availability. LNG sales were down 6% at 17.51mn mt.
Refining and chemicals margins were down, as were oil prices, partly offset by stronger contributions from trading as well as higher LNG and gas prices compared with Q1 2018.
Shell is launching the next share buyback programme, up to $2.75bn in the second quarter. So far Shell has spent $6.75bn on buybacks.
In Upstream, gas production fell 9% to 6.9bn ft³/d despite the inclusion of Salym; while liquids rose 9% to 1.72mn b/d.
Cash flow from operating activities of $4.227bn included positive working capital movements of $512mn as well as a positive impact of $275mn related to the implementation of IFRS 16. Excluding working capital movements and the impact of IFRS 16, cash flow from operating activities increased to $3.485bn compared with $2.945bn in Q1 2018, mainly as a result of higher earnings.
CEO Ben van Beurden said Shell had made a strong start to the year and its integrated value chain enabled the downstream business to deliver robust results despite challenging market conditions. The company is on track to meet its 2020 outlook.