Shell improves Q3 outlook on higher upstream gas volumes, by Investing.com

Investing.com — Shell (NYSE: ) (BS: ) on Monday issued its trading update ahead of its 2024 third-quarter results, offering a positive outlook, largely driven by guidance for increased volume in both the ​​its upstream divisions, as well as in the gas integrated ones.

These segments are crucial drivers of earnings for the company, and the updates suggest a stronger performance in the third quarter compared to earlier expectations.

In the integrated gas division, Shell increased its guidance for liquefaction volumes to 7.3-7.7 million tonnes, from the previous range of 6.8 to 7.4 million tonnes.

This increase in guidance is in line with forecasts reported in last week’s LNG Tanker Tracker report and reflects improved production in the quarter.

Gas trading performance is expected to remain flat quarter-on-quarter, a result that is likely to beat market expectations. The company also provided additional details on certain financial items in this segment, forecasting operating expenses of $1.1 billion to $1.3 billion, depreciation, depletion and amortization of $1.2 billion to $1.6 billion, and fees between $800 million and $1.1 billion.

In the upstream segment, Shell similarly increased its production guidance, now projecting 1.74-1.84 million barrels of oil equivalent per day, compared to the previous range of 1.58-1.78 million kboed.

This upward revision is noteworthy as it beats the RBC consensus and the broader market. In addition to higher production estimates, Shell expects $1.9-2.5 billion from operations, $2.3-2.9 billion in DD&A and $2.0-2.8 billion in charges . Importantly, Shell also guided for associate/joint revenue of about $100 million, which was absent from previous estimates.

In the Downstream division, Shell reported higher chemical margins quarterly, rising to $164 per tonne from $155 per tonne in the second quarter.

Despite this, the company indicated that the chemicals division would likely report a loss for the quarter. Refining margins also fell to $5.5 a barrel from last quarter’s level, a result in line with RBC’s forecasts.

“While there are some upsides and takeaways here, we believe the positives outweigh the negatives, with both upstream and integrated gas likely to see improvements in Q3 reporting,” analysts at RBC Capital Markets said in a note .

Operationally, both chemicals and refinery utilization rates have been reduced toward the lower end of previous guidance. Oil trading, a profit center for Shell, is expected to underperform compared to the previous quarter, which is in line with the company’s outlook and market forecasts.

The renewable energy and energy solutions division continues to be a more volatile part of Shell’s business. The company guided earnings between a loss of $400 million and a profit of $200 million, which was well below the RBC estimate of $69 million and the market consensus of $123 million.

This signals the ongoing challenges the company faces in profitably expanding its low-carbon businesses.

From a cash flow perspective, Shell’s guidance suggests a potential working capital release of US$0-4 billion with a neutral impact from derivatives.

Additionally, cash tax outflows for the quarter are expected to fall between $2.5 billion and $3.3 billion, which is broadly in line with RBC’s estimate of $2.8 billion.

“We note that investor sentiment around gas trading, particularly for Shell, has been negative in recent weeks following the company’s comments about reducing the ‘net length’ of its LNG portfolio and given higher volumes and results trading in line with Q2, we think this should provide some relief for investors,” RBC added.