Shell profit beats expectations, buybacks kept steady

Shell exceeded analyst expectations on Friday, reporting a 28% drop in first-quarter net profit to $5.58 billion, while holding steady the pace of its share buyback program despite falling oil prices and lower refining margins.

That contrasts with rival BP that cut its buybacks this year to try to strengthen its balance sheet and win back investor confidence.

"The main (opportunity) for me is, at the moment, the ability to buy back my shares," finance chief Sinead Gorman said in a call.

Shell said it would buy back shares worth $3.5 billion over the next three months, the 14th consecutive quarter of a buyback programme of at least $3 billion.

Its gearing, a debt-to-equity ratio, of 18.7% is lower than the level of 25.7% at BP, whose shares have lost a third over the last 12 months, versus a 13% drop for Shell.

When asked about a possible takeover bid for BP, whose market capitalisation is less than half of Shell's, Chief Executive Wael Sawan told the Financial Times he would rather buy back more Shell stock. A Shell spokesperson confirmed the comments.

Shell's adjusted earnings, its definition of net profit, reached $5.58 billion in the first quarter, above an average forecast of $4.96 billion in a company-provided analyst poll, but below $7.73 billion a year ago.

Shell's shares were up 2.2% by 1218 GMT, outperforming a broader index of energy companies that rose 0.9%.

Its indicative refining margin stood at $6.2 per barrel, up from $5.5 per barrel at the end of last year, but down from $12 per barrel a year ago, reflecting a downturn across the industry.

Global benchmark Brent crude prices averaged around $75 a barrel during the January-March quarter, compared with around $87 a year earlier. Brent traded around $62 on Friday.

Shell has a dividend breakeven point of $40 a barrel and has promised to continue buying back shares even if the oil price falls to $50 a barrel.

At a strategy update in March, Shell said it would return more cash to shareholders on expectations of higher liquefied natural gas sales, trimmed its investments through 2028 and raised the prospect of reviewing its chemicals business.

When asked about closing or selling some of those assets, Gorman said the group had given itself until the end of the decade to decide.

Shell on Friday reiterated its reduced annual investment budget of $20-$22 billion for this year.

Shell said its gas trading business was in line with the previous quarter despite a hit from expiring hedging contracts.

That contrasts with BP, which said that a weak result in its gas trading business weighed on its first-quarter results that missed expectations.

"We were able to sort of route several cargos to more profitable destinations. And I think we were just on the right side of it. Our traders in LNG are doing a superb job," Gorman said.