Shell (SHEL, Financial), a leading British petroleum company, reported a slight decrease in third-quarter profits compared to the previous year, exceeding analysts' expectations. This performance was achieved despite significant drops in oil prices and refining margins, thanks to growth in natural gas sales.
In recent months, global refining margins have plummeted, driven by weak economic activity worldwide and the initiation of new refineries in Asia and Africa. Oil prices fell by over 17% during the third quarter. Shell reported an adjusted profit of $6 billion from July to September, compared to $6.3 billion in the previous quarter and $6.2 billion for the same period last year, but still above analysts' forecast of $5.3 billion.
Despite the downturn, Shell plans to repurchase an additional $3.5 billion in shares over the next three months while maintaining a dividend of $0.34 per share. Chief Financial Officer Sinead Gorman highlighted that this marks the twelfth consecutive quarter where Shell has announced a buyback of at least $3 billion. By the end of the third quarter, Shell's net debt stood at $35.2 billion, down from $40.5 billion the previous year, leading to a leverage ratio of 15.7%, the lowest since 2015.
Gorman emphasized that the company’s robust balance sheet allows for better shareholder distribution, unaffected by the broader macroeconomic environment. She stated that strong performance was achieved during the quarter due to solid operating results across Shell’s portfolio, continuing the momentum from recent quarters.
Segment-wise, Shell, the largest global trader of liquefied natural gas, saw LNG sales increase from 16.4 million tons per year in the previous quarter to 17 million tons per year, contributing to a 4% rise in adjusted profit for that segment. The oil and natural gas production division reported a 5% profit growth with a 2% increase in output. The strong growth in upstream and LNG businesses offset a 57% profit decline in refining and chemicals, where conversion margins for crude oil to fuel significantly dropped. Additionally, Shell noted weakening oil trading.
Shell had previously warned of a substantial decline in refining margins quarter-over-quarter, with expected declines in trading performance in its chemicals and oil products division. Free cash flow in the third quarter increased to $10.83 billion from $7.5 billion a year earlier, while cash capital spending was $4.95 billion, down from last year's $5.65 billion.
Similarly, Shell's UK rival, BP (BP), reported its weakest quarterly profit in nearly four years on Tuesday. BP's third-quarter underlying replacement cost profit, a key net profit indicator, was $2.3 billion, surpassing analysts' expectations but significantly down from the previous year.
