Shell Raises Q3 Outlook with Increased Gas and Upstream Volumes

Shell recently released its trading update ahead of its third-quarter 2024 results, showcasing a favorable outlook primarily due to increased volume guidance in its upstream and Integrated Gas divisions.

These sectors are essential for Shell’s earnings, and the updates indicate a stronger performance in the upcoming quarter than previously anticipated.

In the Integrated Gas division, Shell has increased its liquefaction volume guidance to 7.3-7.7 million tonnes, up from an earlier range of 6.8 to 7.4 million tonnes. This revision is in line with forecasts highlighted in a recent LNG Tanker Tracker report and reflects enhanced output during the quarter.

The company expects gas trading performance to remain stable compared to the previous quarter, with results likely exceeding market expectations. Specific financial projections for this segment include operating expenses estimated at $1.1-1.3 billion, depreciation, depletion, and amortization of $1.2-1.6 billion, and taxes ranging from $800 million to $1.1 billion.

In the upstream segment, Shell has also raised its production guidance to 1.74-1.84 million barrels of oil equivalent per day, compared to the prior range of 1.58-1.78 million. This upward revision exceeds both RBC’s and the broader market consensus. Alongside higher production estimates, the company forecasts operating expenses of $1.9-2.5 billion, DD&A of $2.3-2.9 billion, and taxes of $2.0-2.8 billion. Notably, Shell has projected joint venture and associate income of around $100 million, which was not included in earlier estimates.

In the Downstream division, Shell reported an increase in chemical margins, rising to $164 per tonne from $155 in the previous quarter. However, the company indicated that the Chemicals division may report a loss for the quarter. Refining margins also dipped to $5.5 per barrel, which aligns with market predictions.

Analysts from RBC Capital Markets remarked that while there are some mixed signals, the positives outweigh the negatives, particularly with the likelihood of upgrades in both the upstream and Integrated Gas segments before the third-quarter reporting.

Operational performance in chemicals and refining has been adjusted toward the lower end of prior guidance. Additionally, oil trading, a key profit area for Shell, is expected to underperform compared to last quarter, reflecting the company’s outlook and market forecasts.

The Renewables and Energy Solutions division remains a more unpredictable part of Shell’s operations. The company has guided earnings between a loss of $400 million and a profit of $200 million, falling short of RBC’s estimate of $69 million and the market consensus of $123 million. This situation highlights the ongoing challenges in profitably scaling low-carbon initiatives.

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

RBC further noted that recent negative investor sentiment regarding gas trading, following the company’s comments on reducing ‘net length’ in its LNG portfolio, may see some relief due to higher volumes and stable trading results compared to the second quarter.