"Energy Super Giants" Encounter Performance Setback! Shell and Total's Net Profits Halved in the Second Quarter

Multiple central banks' aggressive interest rate hikes have made the global economic growth outlook increasingly uncertain, dragging down oil prices and causing a significant decline in profits for energy giants compared to the same period last year.

On July 27th, "energy super giants" Shell and TotalEnergies released their second-quarter 2023 earnings reports. Due to weak oil and gas prices, refining margins, and trading volumes, the profits of these two giants were halved compared to the same period last year.

Shell, Europe's largest oil and gas company, reported an adjusted net profit of $5.073 billion in the second quarter of this year, a 58% decrease from the record-breaking $11.472 billion in the same period last year. This figure is on par with 2021 but falls short of the average analyst expectation of $5.58 billion.

Shell's adjusted earnings per share were $0.75, below the market estimate of $0.83. The second-quarter dividend was $0.331, in line with the market estimate of $0.33. The operating cash flow for the second quarter was $15.13 billion, exceeding the market estimate of $13.85 billion.

Shell CEO Wael Sawan stated, "Despite the impact of commodity prices, Shell's operating cash flow remains strong."

Looking at different segments, Shell's Integrated Gas division experienced the largest decline in profitability, nearly halving from $4.9 billion in the first quarter of this year to $2.5 billion. However, it reached a historical high of $5.968 billion in the fourth quarter of last year. The adjusted net profit for the upstream business was $1.684 billion, for the marketing business was $0.894 billion, for the chemicals and products business was $0.45 billion, and for the renewable energy and energy solutions business was $0.228 billion.

The company stated that due to "seasonality and reduced optimization opportunities," the decline in prices and weak trading profits put pressure on natural gas after a strong performance in the first quarter.

Biraj Borkhataria, an analyst at RBC Capital Markets, commented that Shell's earnings report was "disappointing," with the chemicals segment experiencing a loss of $0.468 billion due to weak demand, higher than expected.

In addition, Shell announced a $3 billion share buyback, which will be completed before the announcement of third-quarter performance, and increased the quarterly dividend by 15% to $0.3310. At the same time, the expected capital expenditure for the full year of 2023 was revised down to $23 billion to $26 billion. After the release of the earnings report, Shell's US stocks fell more than 1% in pre-market trading. As of the time of writing, Shell's decline narrowed to 0.35%, reaching $62.40.

In the context of a significant drop in oil and gas prices, Total's adjusted net profit for the second quarter also declined significantly to $4.96 billion, a year-on-year decrease of 49%, which was lower than the average analyst expectation of $5.12 billion. Revenue was $56.271 billion, a year-on-year decrease of 24.75%. Adjusted earnings per share for the second quarter were $1.99, lower than the market estimate of $2.19. Adjusted EBITDA for the second quarter was $11.11 billion, lower than the market estimate of $11.53 billion.

Patrick Pouyanne, CEO of Total, said, "Despite the weakness in oil and gas prices in the second quarter, Total once again delivered solid performance, strong cash flow, and shareholder distribution. The average return on capital employed is 22%."

After repurchasing $2 billion worth of shares in the first and second quarters, Total plans to repurchase the same amount in the third quarter. Total announced a temporary dividend of €0.74 per share. As the company seeks to divest its Canadian oil business, it will allocate at least 40% of its operating cash flow to shareholders this year.

Meanwhile, Total maintains its capital expenditure plan of $16 billion to $18 billion for this year, including $5 billion for low-carbon energy such as wind, solar, and biomethane.