Shell Trading Update

Investing.com — Shell (NYSE:SHEL) (BS:SHELl) released its trading update on Monday ahead of its third-quarter 2024 results, indicating a positive outlook largely due to increased volume guidance in both its upstream and Integrated Gas divisions.

These divisions are key drivers of earnings for the company, with updates suggesting stronger performance in the third quarter than previously anticipated.

Integrated Gas Division

Shell raised its liquefaction volumes guidance to 7.3-7.7 million tonnes, an increase from the prior range of 6.8 to 7.4 million tonnes. This adjustment aligns with last week’s LNG Tanker Tracker report and indicates improved output for the quarter.

Gas trading performance is expected to remain flat quarter-on-quarter, potentially outperforming market expectations. Shell forecasts operating expenses between $1.1-1.3 billion, depreciation, depletion, and amortization (DD&A) of $1.2-1.6 billion, and taxes ranging from $800 million to $1.1 billion.

Upstream Segment

In the upstream sector, Shell has also raised its production guidance to 1.74-1.84 million barrels of oil equivalent per day, up from a previous 1.58-1.78 million kboed. This revision is significant, surpassing both RBC’s and the broader market consensus.

Along with higher production estimates, Shell anticipates opex of $1.9-2.5 billion, DD&A of $2.3-2.9 billion, and taxes of $2.0-2.8 billion. Notably, Shell now guides for joint venture/associate income of around $100 million, which was excluded from earlier estimates.

Downstream Division

In the Downstream division, Shell reported improved chemical margins quarter-on-quarter, rising to $164 per tonne from $155 per tonne in Q2. However, the Chemicals division is expected to report a loss for the quarter, while refining margins dropped to $5.5 per barrel, reflecting RBC’s forecasts.

Analysts from RBC Capital Markets remarked, “While there are some puts and takes here, we think the positives outweigh the negatives, with both the upstream and integrated gas likely to see upgrades into 3Q reporting.”

Operationally, chemical and refining utilization rates have decreased toward lower prior guidance. Oil trading, a profit center for Shell, is expected to underperform compared to the last quarter, consistent with the company’s outlook and market forecasts.

Renewables and Energy Solutions Division

The Renewables and Energy Solutions division remains volatile, with Shell guiding earnings between a loss of $400 million and a profit of $200 million, which falls short of RBC’s estimate of $69 million and market consensus of $123 million. This indicates ongoing challenges for the company in scaling its low-carbon businesses profitably.

Cash Flow Perspective

From a cash flow standpoint, Shell’s guidance points towards a potential working capital release of $0-4 billion, with derivatives having a neutral effect. Cash tax outflows for the quarter are expected to be between $2.5 billion and $3.3 billion, aligning closely with RBC’s estimate of $2.8 billion.

RBC noted, “Investor sentiment around gas trading in particular for Shell has been negative in recent weeks following commentary from the company about reducing ‘net length’ in its LNG portfolio. However, with higher volumes and in-line trading results versus Q2, we believe this should provide some relief for investors.”