Published - July 27th, 2023 @ 11:52 AM (GMT+2)

Thursday saw Shell (NYSE:SHEL)reporting a drastic 56% decrease in second-quarter profit, down to $5 billion, resulting from decreasing oil and gas prices and falling refining profit margins. This slump has led to a deceleration in the company's share repurchase program. The results, which did not meet projections, contrast with the large earnings in 2022, stimulated by an energy price surge following Russia's invasion of Ukraine.

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Share Buyback and Dividends: 
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The energy corporation confirmed that it would repurchase $3 billion in shares in the coming three months, a decrease from the previous $3.6 billion while raising its dividend to $0.33 per share. This comes after Shell's June announcement of its intention to buy back at least $5 billion in shares in the year's second half, with a minimum of $2.5 billion to be announced at its third-quarter results. The company's CEO, Wael Sawan, reinforced the focus on share buybacks due to the inherent value of Shell's shares.

Market Response and Analyst View: 
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Unfortunately, Shell's adjusted earnings of $5.073 billion fell short of analyst forecasts of $5.8 billion. These results starkly contrast the record quarterly earnings of $11.5 billion a year prior and $9.65 billion in 2023's first quarter. Shell shares experienced a 1.7% drop by 0730 GMT, outpacing the broader 1% decline of the European energy index.

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Analysts were disappointed with the second-quarter results, primarily due to the lower-than-anticipated earnings from the upstream and chemicals divisions, combined with weaker third-quarter guidance. Similar profit drops were observed in French rival TotalEnergies and Norway's Equinor.

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Reasons for Lower Results:
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The lower results are primarily attributable to reduced liquefied natural gas (LNG) trading results, dwindling oil and gas prices, diminishing refining margins, and decreased sales volumes compared to the previous quarter. Despite soaring energy prices following Russia's Ukraine invasion last year, 2023 has sharply dropped due to easing shortage fears. Benchmark Brent crude prices averaged $80 a barrel in 2023's second quarter, down from $110 a year earlier.

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Debt Reduction:
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Despite this challenging environment, Shell reduced its debt pile to $40.3 billion by the end of the second quarter, down from $44.2 billion three months prior. It reduced its debt-to-capital ratio, or gearing, by one percentage point to 17%.

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