It was a week of firsts for Shell. A new chief financial officer, Sinead Gorman, presented her first set of hard numbers in its first-quarter results on Thursday. Those, too, set a precedent. The Anglo-Dutch oil company boasted its best-ever ebitda result in that period, and the top quarterly out-turn since June 2008.
She must help her boss Ben van Beurden perform a tricky balancing act. Shareholders hunger for payouts while some politicians hope to divert surfeit cash flow towards other perceived societal priorities.
Certainly, Shell gushes profit from every unit, including its downstream products division, which included a strong trading result. This business’s $2bn of ebitda gets credit for the group’s pleasant earnings surprise.
Adjust its earnings for various write-offs, including those for its abandoned Russian operations, and the oil major had returns on average capital employed of more than 10 per cent, well above its cost of capital. All this for 3.4 times (including net debt) its estimated ebitda.
BP, too, had excellent quarterly results this week. And so, some in Westminster howl for windfall taxes. Lex generally opposes these as investment hindrances. But arguing that any such tax would curb production of oil and gas makes it sound like a carbon tax.
That is not so far from the oil producer’s thinking process. Shell already weighs down any prospective project’s internal rate of return with carbon costs. It may well have its own global internal estimate, but says it varies by country. That must be rising if Europe’s emissions trading system is anything to go by. Its carbon price topped €91 per tonne this week, up 82 per cent over 12 months. The new UK contract trades at a similar value.
Just tipping its overflowing free cash flow coffers into the pockets of Shell shareholders via increased buybacks is hard for UK ministers to defend. A hint of better than expected payouts later in the year helped boost the share price 4 per cent on the day, first among its peers. Yet a Janus-like approach by US and European governments to the energy sector — harangued over both climate change and supply shortfalls — only encourages inertia.
Eventually, worries about economic recession should temper commodity prices and any fury over Big Oil’s profits. No wonder investors are greedy for all they can get this year.
