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Analysts said Shell had room to boost its returns to shareholders after Europe’s biggest oil and gas company beat profit expectations by a fifth and maintained its share buyback program at $3.5 billion in the first quarter.
Barclays analyst Lydia Rainforth said Shell’s operating cash flow is now at an annual rate of more than $60 billion, adding that “Shell has scope to increase dividends on an underlying basis over time.”
Biraj Borkhataria, an analyst at RBC Capital Markets, noted that Shell, which trades at a significant discount to its U.S. rival ExxonMobil, now has higher underlying cash flow and a similar capital expenditure budget. “The valuation discrepancy continues to appear extreme to us,” he said, adding that Shell may choose to increase its returns to shareholders in the second half of the year.
Shell Chief Executive Wael Sawan has vowed to cut costs, simplify the business and focus on operations to close the valuation gap with major U.S. oil companies.
He previously noted that he would have to consider “all options” if the gap remained after the end of 2025, including changing the company’s London listing, perhaps to one in the United States. Former Shell boss Ben van Beurden said the company was “massively undervalued” in London.
Christyan Malek, an analyst at JPMorgan, said Shell’s improved cash flow should “clearly highlight the merits of a U.S. listing” since ExxonMobil’s valuation was twice that of Shell.
Shell said adjusted earnings were $7.73 billion in the first quarter of 2024, well above the consensus forecast of $6.5 billion but 19 percent lower than the same period last year as gas prices fell in the wake of the energy crisis declined in Europe. Net debt fell to $40.5 billion from $44.2 billion a year ago.
In early trading in London, Shell shares rose 1.45 percent to £28.60.
Shell reported operating cash flow of $13.3 billion in the first quarter, compared with a consensus forecast of $13.7 billion and a decline of 6 percent year-over-year.
Shell reported strong gains in its gas business, accounting for 40 percent of its profits. The company said its liquefied natural gas production rate was at the upper end of its previous guidance. Total oil and gas production increased 10 percent compared to the final quarter of 2023 due to lower maintenance in Australia and Qatar.