Shell PLC’s capital deployment strategy favors repurchasing company stocks more than absorbing rivals, chief executive officer (CEO) Wael Sawan has said, in contrast to USA competitors Chevron Corp. and Exxon Mobil Corp.
Reporting a 23 percent quarter-on-quarter increase in adjusted earnings to $6.2 billion for the third quarter, the British energy giant said it has approved a buyback program for the next three months amounting to $3.5 billion. That brings its share redemption program for the second half of 2023 to $6.5 billion and total announced stockholder distributions for the year to about $23 billion.
“If we then look at how we want to be able to deploy capital, our preference right now is to continue to buy that very attractive asset base that we have, and the free cash flow yield that is also a very healthy free cash flow yield”, Sawan, who took over as Shell boss at the start of 2023, said in a question and answer session with analysts.
Shell posted $0.93 in adjusted earnings per share for the July–September 2023 quarter. Its free cash flow stood at $7.51 billion for the latest three-month period, with $12.33 billion generated from operating activities, the London-based company announced Thursday.
It recorded $5.65 billion in cash capital expenditure and $10.1 billion in operating expenses.
USA rival Chevron earlier reported $3.05 in adjusted earnings per share. The San Ramon, California-based company had $5 billion in free cash flow, compared to $4.7 billion capital expenses, according to its quarterly report October 27.
Another American major, ExxonMobil, reported the same day $2.25 earnings per share. It recorded $16 billion in free cash flow and $5.2 billion in capital expenditure.
Earlier in October Spring, Texas-based Exxon Mobil announced it was acquiring Pioneer Natural Resources in an all-stock transaction valued at $59.5 billion.
“The merger combines Pioneer’s more than 850,000 net acres in the Midland Basin with ExxonMobil’s 570,000 net acres in the Delaware and Midland Basins, creating the industry’s leading high-quality undeveloped U.S. unconventional inventory position”, said a joint press release October 11.
“The merger is anticipated to be accretive immediately and highly accretive mid- to long-term to ExxonMobil earnings per share and free cash flow, with a long cash flow runway”, ExxonMobil added. “ExxonMobil’s strong balance sheet combined with Pioneer’s added surplus free cash flow provides upside opportunity to enhance shareholder capital returns post-closing”.
Later October 23 Chevron said it was purchasing Hess Corp. in an all-stock transaction worth $53 billion.
“The combined company is expected to grow production and free cash flow faster and for longer than Chevron’s current five-year guidance”, Chevron and Hess said in a joint news release about the definitive deal set to close in the first half of 2024.
For Shell however, the financial growth strategy is to continue “to preferentially allocate our capital towards share buybacks, more so than going for big acquisitions”, Sawan said in the session with analysts shared on the company’s YouTube channel.
For this year, Shell has now curbed the upper range of its capex to $23–25 billion from $23–26 billion in the second quarter and $23–27 billion in the first quarter.
Its results for the third quarter were weighed down by “lower margins due to seasonal impacts, primarily in Europe, and lower trading and optimization results”, as well as lower output, as stated in its earnings news release. These were offset by “favorable trading and optimization results combined with higher realized liquids prices”.
“We continue to simplify our portfolio while delivering more value with less emissions”, Sawan said in comments for the earnings media release.
Shell closed the first nine months of 2023 with $141.25 billion in current assets, including $43.03 billion in cash and cash equivalents. Its total current liabilities stood at $95.13 billion, including $10.12 billion in debt.
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