Shell accelerates share buybacks as profits soar

Written by Maritime First

…NNPC, BP signs agreement on PMS***

Royal Dutch Shell’s profits soared to a four-year high in the third quarter, boosted by rising oil and gas prices as the company accelerated its giant $25 billion share buyback programme.

Although the $5.6 billion quarterly profit slightly missed forecasts for a fourth quarter, investors took heart from a nearly 60 per cent rise in Shell’s cash generation to $12.1 billion, as deep cost savings in recent years filtered through.

Excluding one-off charges, cashflow was the highest in 10 years at $14.7 billion, the company said on Thursday.

“Good operational delivery across all Shell businesses produced one of our strongest-ever quarters,” Chief Executive Ben van Beurden said in a statement.

Shell’s A shares were down 2.4 percent by 0830 GMT, while the broader oil and gas index was down 1 percent.

The Anglo-Dutch company launched a three-year $25 billion share buyback program in July, making good on a promise to boost shareholder returns following the 2016 acquisition of BG Group, in a show of confidence in its cash generation and profit growth outlook.

Shell said it completed the first tranche of buybacks in October for $2 billion and was launching a second tranche on Thursday of up to $2.5 billion by Jan. 28.

“The main takeaway is the very strong cash generation,” Jefferies analyst Jason Gammel told Reuters. “Continued buybacks are a pretty strong catalyst for the shares.”

Shell’s shares have come under pressure in recent months after three disappointing quarterly results that raised concerns over its ability to meet the share buyback target on top of a $15 billion annual dividend payout, the world’s biggest.

This year’s sharp rise in oil prices to a four-year high of around $85 a barrel has boosted revenues for oil and gas companies.

British rival BP on Tuesday reported its highest quarterly profits in five years, while French rival Total’s profits rose to their highest since 2012 as both firms ramped up production.

Shell’s net income attributable to shareholders in the quarter, based on a current cost of supplies (CCS) and excluding identified items, rose 39 per cent to $5.624 billion from a year ago.

That compared with $4.691 billion in the second quarter, and a company-provided analysts’ consensus of $5.766 billion.

Profits benefited from stronger oil and gas prices as well as bigger contributions from trading operations, though that was offset by weaker refining margins, tax and currency exchange effects.

Chief Financial Officer Jessica Uhl said Shell will stick to its $25 to $30 billion capital expenditure plans in the coming years despite rising waging and services costs.

“We are seeing wage inflation and inflation affecting the supply chain and we are actively managing it,” Uhl told reporters in a conference call.

Debt levels remained stubbornly high. Shell’s debt ratio versus company capitalization, known as gearing, declined to 23.1 per cent in the quarter from 23.6 per cent at the end of June.

Oil and gas production in the quarter fell 2 per cent from a year earlier to 3.596 million barrels of oil equivalent.

Output was expected to rise in the fourth quarter due to lower maintenance, Shell said.

In the meantime, as part of measures to sustain the robust supply of petroleum products across the country and especially going into the Yuletide period and beyond, the Nigerian National Petroleum Corporation (NNPC) has signed a six-month Direct Sale-Direct Purchase (DSDP) agreement with the British Petroleum’s (BP) trading arm, BP Oil International Ltd, for the supply of Premium Motor Spirit, also known as petrol.

This latest agreement will represent 20% of NNPC’s total PMS supply under the DSDP arrangement, which basically allows the corporation to exchange crude oil with international oil traders for imported petroleum products over a period of time.

Speaking shortly after a brief signing ceremony at the NNPC Towers on Thursday, the Group Managing Director of the corporation, Dr. Maikanti Baru, said as the nation’s products supplier of last resort, NNPC was committed to products availability by inviting new and old players to play in the Nigerian oil sector.

He said over the years, BP had demonstrated the capacity and robustness to augment the forecasted shortfall by NNPC, especially as the winter period approaches and as the nation’s elections get underway early into the New Year.

“As a reliable supplier, we think BP is a brand that we can always partner with. We trust the company and we have a good relationship with it. We also believe in the company’s commitment towards the development of local content,” Baru stated.

The NNPC helmsman also commended BP for choosing to partner with AYM Shafa, a local oil company, which he said had been expanding its downstream footprints across the nook and cranny of the country.

“BP’s partnership with AYM Shafa towards delivering on its DSDP obligations makes it a perfect fit for our plans to ensure that there is adequate supply of products throughout the coming Yuletide and even beyond the election period. In AYM Shafa, you are talking of a local company with over 150 retail outlets, depots as well as a good network of trucks nationwide,” Baru added.

Responding, Mr. John Goodridge, the Head of Marketing & Origination of BP’s oil trading business, said it was a great honour for his company to be trusted by the NNPC as one of its strategic suppliers.

“We are delighted to have the opportunity to work more closely with the NNPC. Going forward, we hope to grow this mutual relationship to greater things,” Goodridge added.

He further assured that his company boasts of a global network of refineries capable of generating the products to meet the specifications required by the NNPC.

He said the ultimate was to ensure that over the next six months, Nigeria does not witness any products shortages.

Introduced in 2016, the DSDP arrangement is a model carried out through direct sales of crude oil to refiners or consultants, who in turn supply NNPC with equivalent worth of products.

Since its inception, the DSDP model has not only saved NNPC millions of dollars that would have been paid through demurrage, it has also proven to be a major component of the corporation’s petroleum products supply portfolio which ensures stability in products supply nationwide.

Additional report from The Nation

About the author

Maritime First