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Shell urged to return cash to shareholders after beating first-quarter forecasts

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Shell has room to increase its returns to shareholders, analysts said, after Europe’s biggest oil and gas company beat earnings expectations by a fifth and maintained its share buyback scheme at $3.5bn in the first quarter. 

Shell’s operating cash flow was now running at a yearly rate of more than $60bn, said Lydia Rainforth, an analyst at Barclays, adding that “over time, there is room for Shell to deliver increases in the dividend on an underlying basis”.

Biraj Borkhataria, an analyst at RBC Capital Markets, noted that Shell, which trades at a significant discount to its US peer ExxonMobil, now had a higher underlying cash flow and a similar capital expenditure budget. “The valuation disconnect continues to look extreme to us,” he said, adding that Shell might choose to increase its returns to shareholders in the second half of the year.

Wael Sawan, Shell’s chief executive, has promised to cut costs, simplify the business and focus on operations in a bid to close the valuation gap with US oil majors.

He previously noted that if the gap remained after the end of 2025, he would have to consider “all options”, including changing the company’s London listing, perhaps, for one in the US. Shell’s former chief executive, Ben van Beurden, has said that the company is “massively undervalued” in London.

Christyan Malek, an analyst at JPMorgan, said that Shell’s improved cash flow “should bring the merits of a US listing into clear focus” given that ExxonMobil’s valuation was twice that of Shell’s.

Shell said adjusted earnings were $7.73bn in the first quarter of 2024, well ahead of a consensus forecast of $6.5bn, but down 19 per cent from the same period last year as gas prices fell back after Europe’s energy crisis. Net debt fell to $40.5bn from $44.2bn a year ago.

In early trading, Shell’s shares rose 1.45 per cent in London to £28.60.

Shell posted an operating cash flow in the first quarter of $13.3bn, compared with a consensus forecast of $13.7bn and down 6 per cent year on year.

Shell reported strong profits in its gas business, accounting for 40 per cent of its earnings. The company said that its rate of production of liquefied natural gas was at the top end of its earlier guidance. Its total oil and gas production was up 10 per cent compared with the final quarter of 2023 because of lower maintenance in Australia and Qatar.

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