Shell’s gas business booms, pledges $5.5bn in buybacks from Permian sale
Global major Shell said surging international gas prices will boost earnings from its integrated gas operations in fourth-quarter 2021, as it overcomes operational issues which reduced Liquefied Natural Gas (LNG) production, mainly at its Prelude floating LNG facility and at Gorgon LNG, where it holds a 25percent interest, the supermajor said in its fourth-quarter 2021 update note on Friday.
“Trading and optimisation results in integrated gas are expected to be significantly higher compared to the third quarter 2021, overcoming ongoing supply issues and capturing unique optimisation opportunities generated through the large scale and scope of our LNG trading portfolio in the prevailing high LNG spot price environment,” it said in a regulatory filing.
Integrated gas posted adjusted earnings of $1.68bn in the third quarter and adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $3.77billion as production held steady at about 938,000 barrels of oil equivalent (boe)/day and gas liquefaction volumes slipped to 7.39mn mt from 7.49mn mt in Q2 2021.
Fourth-quarter production is expected to fall in the 910,000-950,000 boe/day range, while liquefaction volumes are forecast at between 7.7mn mt and 8.3mn mt, at the lower end of guidance presented in its Q3 results.
Shell also confirmed that the remaining $5.5billion in proceeds from the sale last year of its Permian shale oil assets will be distributed to shareholders in the form of share buybacks “at pace.” It gave no timeline for the repurchases but said more details would be released along with its Q4 2021 earnings report on February 3.
At the same time, Shell expects its oil products trading and optimization results to be significantly lower than the third quarter of 2021. Adjusted earnings at the refining and trading division are expected to be negative despite higher indicative refining margins, an approximation of Shell’s global net realized refining margin, the company said.
Shell announced in September its exit from the Permian with a divestment of its assets in the shale play to ConocoPhillips for a total price of $9.5 billion.
“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” said Wael Sawan, Upstream Director at Shell.
“The Permian related distributions are in addition to the distributions of 20-30% of cash flow from operations as per our existing capital allocation framework,” Shell said today.
The decision for the Permian-related buybacks was taken on December 31, 2021, during the first Board meeting held in the UK following the decision to implement the simplification of the company’s share structure.
At the end of last year, Shell proposed to shareholders, and they overwhelmingly voted in favour of, a plan to drop the dual share structure and ‘Royal Dutch’ from the name, move its tax residence to the UK from the Netherlands, and make its share structure simpler for investors to value and understand.