Shell profits surge but muted outlook sees shares falter

L Q1 earnings jump as oil price recovers l Lower upstream volumes seen for Q2

Energy giant Royal Dutch Shell has seen its profits jump to their highest level for more than three years on the back of the recovery in oil and gas prices and years of cost-cutting.

The British-dutch group – which recently announced its first major investment in the North Sea in more than six years – saw underlying profits in the first quarter of the year rise by 42 per cent to $5.3 billion (about £3.8bn). Statutory profits surged 69 per cent to $5.7bn.

However, shares in the group fell on the back of what analysts saw as a muted outlook for the second quarter, with the group expecting lower upstream volumes, weaker refinery availability due to maintenance, and a lower pace of growth in the gas business.

Shell chief executive Ben van Beurden said the strong earnings in the first quarter were underpinned by factors including higher oil and gas prices and improved profitability in the exploration and production business.

He added the group was “making good progress” with its $30bn divestment programme, having completed $26bn so far. The programme was launched in 2016 to help pay down debt taken on for its $50bn buyout of BG Group.

Oil prices have been bouncing back over the past year, helping Shell triple its bottomline profits in 2017. Oil briefly reached prices above $75 a barrel this week and there are predictions it could reach $100 amid geopolitical tensions.

Steve Clayton, manager of the HL Select UK Income Shares fund, which holds a position in the company, said it had been a “good start to the year” for Shell but he blamed the outlook for the second quarter for the shares falling 1 per cent, or 26p, to close at 2,502.5p.

However, he added: “Shell’s position is much improved, even if their view of the next few months hardly sets the pulse racing.”

Shell reported an average oil price achieved of $60.66 a barrel in the first quarter – up by 25 per cent on a year earlier. Production lifted 2 per cent to 3.84 million barrels a day.

The ramp-up of the giant Gorgon gas project off Australia’s shores and the performance of the Pearl gasto-liquids project in Doha are driving much of the growth in production.

Higher prices saw upstream earnings almost triple, even as production volumes dipped a little.

Downstream earnings – largely refining, minerals and marketing – were held back by weak refining margins during the quarter.

In January, the Scottish Government and industry leaders welcomed news that Shell is to construct a floating production, storage and offloading vessel which will begin drilling in the Penguins oil and gas field north-east of the Shetland Islands. l Fellow oil giant BP yesterday said Norwegian executive Helge Lund, the former chief executive of BG Group, will succeed Carl-henric Svanberg as chairman in January.