Shell Earnings: Strong Results Lead to Increase in Repurchases, Which Demonstrates Appeal

No-moat Shell’s SHEL adjusted third-quarter earnings fell to $6.2 billion from $9.5 billion the year before, largely meeting market expectations, on lower oil and gas prices, lower production volumes, which were offset only in part by slightly higher refined product margins and stronger chemical margins. Total production fell to 2.706 thousand barrels of oil equivalent per day from 2,766 mboe/d last year largely because of divestments and planned maintenance.

During the quarter, Shell returned $4.9 billion to shareholders via dividends and repurchases, concluding its latest buyback program of $3 billion announced with second-quarter results. Repurchases will increase to $3.5 billion during the fourth quarter, exceeding management’s prior guidance of a minimum of $2.5 billion for the fourth quarter and $5 billion for the second half of 2023. In total, Shell will return about $23 billion to shareholders in 2023. Shell previously lifted its shareholder distribution guidance to 30%-40% of operating cash flow from 20%-30% while announcing its strategic refresh in June.

This quarter demonstrates Shell’s appeal given its relatively better earnings and increase in repurchases. Shell’s quarter stands in sharp contrast to peer BP, which reported a larger decline in earnings, kept repurchases constant, and recorded large write-offs in its renewable power business. This makes Shell CEO Wael Sawan’s renewed focus on returns more timely and likely more appealing for investors. Our fair value estimate is unchanged, leaving shares fully valued in our view. However, Shell remains our preferred choice among European integrated oils, even if its valuation is slightly less attractive.