Shell Q1 beats by $0.30 EPS, launches $3bn buyback, acquires Arc Resources acreage

Shell reported first-quarter adjusted earnings of $2.44 per share on Friday, beating analyst consensus of $2.14 by $0.30, as the energy giant launched a $3 billion share buyback and announced the acquisition of Montney acreage from Arc Resources.

Revenue came in at $69.69 billion against the $77.54 billion consensus estimate. Adjusted earnings for the quarter were just under $7 billion. Operating cash flow before working capital stood at over $17 billion, though an $11 billion working capital outflow tied to higher commodity prices weighed on free cash flow. Management said the outflow is expected to reverse.

The stock traded at $83.94 on Friday, down $0.30 on the session, and carries a market capitalisation of $237.72 billion.

Middle East disruption and Pearl GTL damage

The Iran conflict materially disrupted supply chains during the quarter, affecting roughly 20 per cent of Shell’s hydrocarbon production. The Pearl GTL facility in Qatar suffered damage to Train 2, with repairs expected to take roughly one year at a cost well below $0.5 billion. Qatar LNG outages combined with Strait of Hormuz transit constraints are expected to weigh on Integrated Gas volumes in the near term.

Arc Resources acquisition

Shell announced the acquisition of contiguous, low-carbon-intensity Montney acreage from Arc Resources. The deal is structured 75 per cent in shares and 25 per cent in cash. Management expects the acquisition to raise Shell’s production compound annual growth rate to approximately 4 per cent through 2030 and accelerate the company’s liquids and LNG growth strategy.

Capital returns and guidance

The board declared a 5 per cent dividend increase and announced a $3 billion share buyback program to be completed over the next three months. Shell maintains its 40 to 50 per cent of cash from operations distribution policy. Management said ‘the balance sheet retains flexibility.’

The consensus analyst rating on Shell is Hold, with an average price target of $97.33. Jefferies reiterated a Buy rating on the stock, saying ‘Shell could have meaningful upside.’ Wells Fargo raised its target to $94 from $77 in April.

Reported net debt stood at $52.6 billion, or roughly $22 billion excluding leases. The debt-to-equity ratio is 0.38.