Shell (LSE:SHEL) shares moved about 5% higher in price today following the release of the company’s third-quarter (Q3) 2022 results. Here are the highlights:
- Adjusted earnings of $9.5bn, beating analyst expectations of $9bn
- A $4m share buyback programme, expected to be completed within three months
- Q3 dividend of 25 cents per share (same as Q2)
- Q4 dividend (paid in March 2023), expected to be 15% higher subject to board approval
The potential Q4 dividend increase, which smashed analyst expectations, will please shareholders. The buybacks — which now total almost $19bn for the year — should support Shell’s share price. Shell’s Q3 2022 adjusted earnings were less than the bumper $11.5bn reported for Q2. But they were more than double the $4.1bn announced for Q2 2021. Adjusted earnings for the first nine months of 2022 are almost double what they were in the whole of 2021.
There are plenty of projects that should keep money flowing. Shell announced this year that it had been selected as a partner in Qatar’s North Field east expansion and North Field South gas projects. It is developing another gas project in Malaysia. And importantly for the future, a hydrogen project in Holland got the go-ahead in July this year. Also, Shell bought an Indian company that develops and manages solar and wind farm projects in August 2022.
Volatile energy prices
How much money Shell makes in the future depends on the price of oil and gas, among other things. Dividends and share buybacks are likely to fall if energy prices cool after recent highs. The European benchmark for gas was up 250% from the start of the year in August. However, Shell is a cyclical business. The price of oil and gas has fallen since the highs in August. Yes, winter is coming, and might see prices move higher. But how about beyond? That is something I have no confidence in forecasting.
Shell’s latest quarterly results have prompted fresh calls for a windfall tax on oil and gas producers. This will happen every time the company and its peers report above-average profits, particularly when there are concerns that citizens will struggle to heat their homes. This is a risk that I cannot ignore, as if a windfall tax is implemented, there is no way of knowing its size and, thus, its impact on the company’s ability to reward its shareholders.
Renewing interest in Shell shares
Oil and gas has to be an industry in decline if the world is serious about net-zero targets and climate change. That, and the growing antipathy to oil majors, might explain why Shell is trading at a P/E multiple of around seven. The company is pivoting towards a renewable energy future, and that’s a big change. However, Shell has expertise in managing big energy projects. I believe it will leverage that expertise in renewables, and the transition will be successful.
On balance, I should buy Shell shares right now as the company seems well-positioned to take advantage of the volatility in the energy markets. But, beyond that, the company also makes sense to me mid to long term. However, I already own a position in Shell in my Stocks and Shares ISA, and I am happy with the size of my allocation and, therefore, won’t be adding to it today.
