U.S. stock futures slip lower; Cook’s firing increases Fed independence worries
Investing.com -- Shares of Shell Plc (LON:SHEL) fell more than 3% on Monday after the energy giant issued a downbeat second-quarter trading update, pointing to lower trading performance and weaker-than-expected earnings in its downstream operations.
Analysts at RBC Capital Markets flagged the guidance as disappointing, particularly in the Chemicals and Products segment.
“Shell has issued successive positive trading updates over the last couple of years, and it looks like the positive streak has been broken,” RBC said.
Shell forecast production at 900,000–940,000 barrels of oil equivalent per day (kboe/d), compared to 927,000 kboe/d in Q1. LNG liquefaction volumes are expected at 6.4–6.8 million tonnes, versus 6.6 million tonnes prior.
The tax charge is estimated at $300–600 million, down from $800 million last quarter. RBC noted significantly weaker gas trading is expected.
Production is seen at 1.66–1.76 million kboe/d, down from 1.855 million in Q1, reflecting scheduled maintenance and the sale of Shell’s Nigerian subsidiary.
Write-offs and JV/associate income are each expected to be around $200 million. Taxes are projected at $1.6–2.4 billion, below the previous $2.6 billion.
Despite higher refining margins at $8.9/bbl (from $6.2) and chemicals margins at $166/tonne (from $126), Shell expects adjusted earnings for the segment to be below break-even.
Refinery utilization is forecast at 92–96% (up from 85%), while chemicals utilization is set to fall to 68–72% (from 81%) due to maintenance at the Monaca facility. Operating expenses are expected between $1.7 billion and $2.1 billion.
Adjusted earnings are forecast to improve from Q1. Sales volumes are projected at 2.6–3.0 million barrels per day, versus 2.674 million previously.
Pre-tax depreciation is expected at $500–700 million, with tax charges in the $200–600 million range. Operating expenses are guided between $2.3 billion and $2.7 billion.
Shell anticipates earnings between a $400 million loss and a $200 million profit. RBC had estimated a $110 million loss, while consensus stood at a $27 million loss. Trading activity is expected to be lower than in Q1.
Corporate adjusted losses are forecast between $400 million and $600 million, in line with Q1. Group-level tax payments are expected at $2.8–3.6 billion.
Working capital changes may range from a $1 billion decrease to a $4 billion increase. Derivative impacts are forecast between a $1 billion loss and a $3 billion gain.
RBC expects Shell’s balance sheet to remain stable despite weaker earnings and does not anticipate changes to the $3.5 billion quarterly buyback. Full Q2 results are scheduled for July 31.