Shell and TotalEnergies Profits Slump as Oil and Gas Prices Cool in Q2 2023

Q2 Profits Drop 56% at Shell and 49% at TotalEnergies Year-on-Year Amid Lower Oil, Gas, and LNG Prices

Major oil and gas giants, Shell and TotalEnergies, experienced significant declines in their second-quarter profits for 2023 compared to their bumper earnings in 2022. The slump in profits came as a result of weakened oil and gas prices, coupled with lower refining margins and trading results.

Last year, global energy prices surged dramatically following Russia's invasion of Ukraine, sparking fears of shortages and driving prices upward. However, the energy landscape took a different turn this year as global economic challenges eased concerns over supply disruptions, leading to a sharp drop in oil and gas prices.

Both companies reported earnings below expectations on Thursday, with Shell and TotalEnergies recording headline profits of approximately $5 billion each for the April-June period. This marked a stark decline of 56% year-on-year for Shell and 49% for TotalEnergies. Nevertheless, Shell's performance was in line with its results in 2021, while TotalEnergies managed to outperform its pre-invasion figures.

In response to the challenging market conditions, Shell has decided to slow the pace of its share buyback program, planning to repurchase $3 billion worth of shares in the next three months, followed by $2.5 billion thereafter. On the other hand, TotalEnergies is sticking to its plan to repurchase $2 billion worth of shares in the third quarter.

Despite the difficult market environment, Shell has announced a 15% quarter-on-quarter increase in dividends, as anticipated. Shell's Chief Executive, Wael Sawan, expressed confidence in the company's "strong operational performance" amid the lower commodity price environment. Similarly, TotalEnergies' Chief, Patrick Pouyanne, acknowledged the quarter's challenges, referring to it as a "softening oil and gas environment."

Other industry players also experienced a similar impact, with Norway's Equinor reporting a 57% drop in second-quarter profits compared to the previous year.

Benchmark Brent crude prices averaged $80 per barrel in the second quarter of 2023, a significant decline from the $110 per barrel recorded a year earlier. Additionally, prices for liquefied natural gas (LNG), a key product for both Shell and TotalEnergies, dropped to $11.75 per million British thermal units (mmBtu) from around $33. Looking ahead, TotalEnergies anticipates average LNG prices to remain between $9 and $10 mmBtu in the third quarter, with a predicted rise to $15 mmBtu over the winter due to increased demand in Asian and European markets.

Moreover, the benchmark front-month Dutch gas contract saw a significant drop to 30.70 euros per megawatt-hour from above 100 euros last year and 70 euros at the start of this year.

Both Shell and TotalEnergies had previously warned of reduced profits from refining crude oil into fuel and chemicals in the second quarter. For Shell, adjusted earnings in this business segment dropped by 78%, while TotalEnergies attributed the decline in European refining margins to a surge in Chinese exports and unexpectedly strong demand for Russian crude and oil products after the EU imposed an embargo.

With global economic conditions continuing to influence the energy market, industry experts and investors are keeping a close eye on how these major oil and gas companies navigate the evolving landscape in the coming quarters.