Shell Shares Slide Over 3% After Weak Q2 Trading Update Highlights Pressure on Earnings
Shares of Shell Plc (LON:SHEL) dropped more than 3% on Monday after the energy company issued a lackluster second-quarter trading update, signaling a decline in trading performance and disappointing results from its downstream operations.
Analysts at RBC Capital Markets described the update as underwhelming, particularly pointing to weakness in Shell’s Chemicals and Products division.
“Shell had delivered a series of strong trading updates in recent years, but it seems that streak has come to an end,” RBC noted.
Shell projected oil and gas production at 900,000–940,000 barrels of oil equivalent per day (kboe/d), slightly down from 927,000 kboe/d in Q1. Liquefied natural gas (LNG) output is expected between 6.4 million and 6.8 million tonnes, close to the previous 6.6 million.
The company expects a tax charge between $300 million and $600 million, an improvement from $800 million in the previous quarter. However, gas trading is expected to be considerably weaker, according to RBC.
Group-wide production is forecast at 1.66–1.76 million kboe/d, down from 1.855 million in Q1, reflecting planned maintenance and the recent divestiture of Shell’s Nigerian business.
Shell also anticipates around $200 million in both impairments and income from joint ventures and associates. Tax obligations are seen between $1.6 billion and $2.4 billion, down from the previous $2.6 billion.
Despite improved refining margins—rising to $8.9 per barrel from $6.2—and higher chemical margins at $166 per tonne (up from $126), the company expects adjusted earnings for the division to remain below breakeven.
Refinery utilization is forecast to improve to 92–96% (up from 85%), but chemicals utilization is expected to drop to 68–72% due to ongoing maintenance at the Monaca facility. Operating costs for the segment are estimated between $1.7 billion and $2.1 billion.
Adjusted earnings are projected to improve compared to Q1. Sales volumes are expected in the range of 2.6–3.0 million barrels per day, versus 2.674 million previously.
Depreciation before tax is forecast at $500–700 million, with tax charges between $200–600 million. Overall operating expenses are seen between $2.3 billion and $2.7 billion.
Shell’s earnings outlook ranges from a $400 million loss to a $200 million profit. RBC had forecast a $110 million loss, while the broader market consensus was for a $27 million loss. Trading activity is expected to soften compared to the first quarter.
Corporate adjusted losses are projected between $400–600 million, similar to Q1. Group tax payments are forecast at $2.8–3.6 billion.
Changes in working capital could swing from a $1 billion decrease to a $4 billion increase. Derivative impacts are expected to range from a $1 billion loss to a $3 billion gain.
Despite the weaker outlook, RBC said Shell’s balance sheet remains solid and does not expect any changes to the company’s $3.5 billion quarterly share buyback program. Shell is set to release full Q2 results on July 31.
