British and European energy companies reported huge profits on Thursday against a background of gas and oil supply uncertainty caused by the war in Ukraine and rampant inflation.
Shell reported a second quarter profit of $11.47 billion, smashing its record set only three months earlier, lifted by a tripling of refining profits and strong gas trading.
And Centrica, Britain's largest energy supplier, reported first-half adjusted operating profit of £1,34 billion ($1.63bn), up from £262 million a year earlier.
Investors shared in the windfall as record earnings allowed Shell to accelerate buybacks, while Centrica resumed dividends after a sixfold increase in operating profit, triggering an outcry over the energy bonanza.
“When a company is using its own profits to buy its own shares back, at this scale, something has gone wrong in the way our markets work,” Darren Jones, the Labour member of parliament who chairs the committee that scrutinizes the Department of Business, Energy and Industrial Strategy. “The government has to intervene to redistribute these unexpected profits to help families in poverty.”
Together, Centrica and Shell supply gas and power to almost a third of UK households, which are facing bills of about £500 a month from January, more than double the level of a year earlier.
Shell is working to ease tight energy markets, Chief Executive Officer Ben van Beurden said, point to production increases. “What we should do as a company is to bring on more supply and that’s exactly what we are doing,” he said.
The UK government has already targeted bumper profits by imposing a windfall tax on oil and gas companies earlier this month. The levy is expected to raise £5 billion, which would only cover a fraction of the anticipated increase in energy costs.
Calls are growing for the government to do more to help people, with British lawmakers warning that a planned £400 discount on energy bills for every household in October won’t be enough to support lower-income families. Other countries such as France are also looking for ways to redistribute rising corporate gains.
“There is a big question mark over those that are making extraordinary profits out of a extraordinary world situation,” Angela Knight, former head of industry body EnergyUK, said.
Centrica sold some assets in the period but a number of the gas companies reporting on Thursday, including several based in France and Spain, had strong profits.
“We’ve made significant progress de-risking the group and building a stronger business for the benefit of all stakeholders,” chief executive Chris O’Shea said.
Shell announced a share buyback programme of $6bn for the current quarter, but did not raise its dividend of 25 cents per share. It said shareholder returns would remain “in excess of 30 per cent of cash flow from operating activities”.
It’s the latest sign of how Russia’s invasion of Ukraine has delivered a windfall for investors in energy producers, even as the soaring costs of fuel batters the economy.
“With volatile energy markets and the continuing need for action to tackle climate change, 2022 continues to present huge challenges for consumers, governments, and companies alike,” Shell chief executive Ben van Beurden said.
Shell shares rose 1.8 per cent to 2,154.5p as of 8am in London.
Shell’s second-quarter adjusted net income was $11.47bn, up from $9.13bn in the first three months of the year.
“The buyback uplift signals confidence in Shell’s cash flow from operations outlook into 2023,” JP Morgan Chase analyst Christyan Malek said.
Profits in Europe
Other major European oil companies have boosted share buy-backs as their profits surged.
France’s TotalEnergies reported on Thursday a record profit of $9.8bn in the quarter and accelerated its buy-back programme.
Norway's Equinor raised its special dividend and boosted share buy-backs on Wednesday after second-quarter profit of $17.6bn beat expectations.
Spanish energy group Repsol on Thursday posted a more than four-fold rise in second-quarter profit, boosted by high oil and gas prices, and announced plans to extend a proposed share buyback.
Repsol's adjusted net income hit €2.12bn ($2.17bn) in the quarter, up from €488m in the same period last year.
US rivals Exxon Mobil and Chevron report results on Friday.
