Shell and TotalEnergies post sharp drops in profit

London/Paris — Shell and TotalEnergies reported sharp falls in second-quarter profit from bumper 2022 earnings as oil and gas prices, refining margins and trading results all weakened.

Oil and gas prices soared last year in the wake of Russia’s invasion of Ukraine but energy prices have dropped sharply this year as fears of shortages eased amid global economic challenges.

Both companies missed earnings forecasts on Thursday, recording headline profit for April-June of about $5bn each, down 56% year on year at Shell and 49% at TotalEnergies.

Still, this was broadly in line with Shell’s performance in 2021, while TotalEnergies outperformed its pre-invasion results.

Shell’s shares were down 1.9% and TotalEnergies' slipped 0.4% on Thursday, compared with a 1% decline in the European index of oil and gas companies.

Shell slowed the pace of its share buyback programme to $3bn in the next three months and $2.5bn thereafter, while TotalEnergies stuck to a flagged $2bn for the third quarter.

Shell also raised its dividend by 15% quarter-on-quarter, as expected.

Shell’s CEO Wael Sawan said the company showed “strong operational performance... despite a lower commodity price environment”, while TotalEnergies’ chief Patrick Pouyanne said the quarter showed a “softening oil and gas environment”.

Norway’s Equinor reported on Wednesday a 57% drop in second-quarter profits from a year earlier.

Benchmark Brent crude prices averaged $80 a barrel in the second quarter of 2023, compared with $110 a year earlier. Prices for liquefied natural gas (LNG), a key product for both groups, dropped to $11.75 per million British thermal units (mmBtu) from about $33.

TotalEnergies expects average LNG prices to linger between $9 and $10 mmBtu in the third quarter, but expects a rise to $15 mmBtu over winter due to Asian and European demand.

The benchmark Dutch gas contract last traded at €30.70MW/h, down from above €100MW/h in 2022 — including a spike to more than €300 in August — and €70 at the start of this year.

Shell and TotalEnergies had flagged shrinking profit from refining crude oil into fuel and chemicals in the quarter. Shell’s adjusted earnings in that business were down 78%.

TotalEnergies said European refining margins dropped due to a surge in Chinese exports and quicker-than-expected Russian crude and oil products finding global buyers after the EU imposed an embargo.

Reuters