Shell PLC maintained the pace of its share buybacks even as profit dropped by more than expected and net debt rose due to weaker trading amid lower oil prices.
Shell chief executive officer Wael Sawan partly attributed the under-performance to the expiry of some liquefied natural gas hedging contracts, something that affects profit but not cash flow. Shell’s cash generation was strong and the company had a "tremendous year," he said in an interview with Bloomberg TV yesterday.
London-based Shell is the first oil and gas major to report fourth-quarter earnings, which are expected to be weaker across the board for an industry that has been buffeted by faltering demand and gloomy forecasts.
Photo: Peter Boer, Bloomberg
Shell continued its buybacks at a pace of US$3.5 billion a quarter and raised its dividend by 4 percent, as expected. Most of its peers are also predicted to maintain investor returns, covering any shortfall in their free cash flow with fresh borrowing. BP PLC might be the exception, having warned last year that buybacks could be cut.
Shell’s adjusted net income for the period was US$3.66 billion, down from US$7.31 billion a year earlier, according to a statement. That missed the average analyst estimate of US$4.36 billion.
The miss was a result of a broadly weaker performance across multiple parts of the energy giant’s global business. The company cited higher exploration write-offs, lower margins from crude and oil products trading, and weaker liquefied natural gas trading.
The company's profit miss reflected "a larger loss than expected in chemicals, and weaker oil trading," RBC Capital Markets analyst Biraj Borkhataria said in a note.
"Strong cash generation" was a bright spot in what were otherwise "relatively soft earnings," he added.
Shell's cash flow from operations was US$13.16 billion for the period, almost US$2 billion more than expected.
Sawan said Shell has completed "the 13th consecutive quarter of at least US$3 billion of buybacks."
Net debt rose to US$38.81 billion, up from US$35.23 billion in the prior period, although still low by historical standards.
Capital expenditure came in at US$21.08 billion last year, below the company’s prediction of US$22 billion. Pausing a biofuels project in Rotterdam helped to attain this level, chief financial officer Sinead Gorman said on a call with reporters.
Shell will keep a lid on spending, which is key to maintaining the resilience of the company in what is likely to be "a year of uncertainty and volatility," Sawan said.
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