Shell shares rise on trading update showing strong volumes and margins

Investing.com -- Shell Plc (LON:SHEL) shares traded higher after the British energy and petrochemical company released its third-quarter trading update, which indicated stronger liquefaction volumes, higher trading activity, and improved refining margins. 

Analysts at Jefferies described the update as “overall a positive update,” saying the trading update sees 5-10% upside to consensus earnings of $4.57 billion, mainly driven by integrated gas, where liquefaction volumes and trading are higher, and by the products segment, with higher refining margins and trading.

Jefferies also noted that cash flow from operations before working capital is expected to reflect similar upside at $11.1 billion. 

In integrated gas, Shell raised its liquefaction guidance to 7-7.4 million tonnes, up from 6.7-7.3 million tonnes in the second quarter and slightly above a consensus of 7.1 million tonnes. 

Production guidance was lowered to 910,000-950,000 barrels of oil equivalent per day (boe/d), compared with 910,000-970,000 boe/d in the previous quarter and a consensus of 949,000 boe/d. 

Operating expenses are expected at $1-1.2 billion, depreciation, depletion, and amortization (DD&A) at $1.4-1.8 billion, and taxes at $0.4-0.7 billion. Trading expenses were described as “significantly higher” quarter over quarter.

Upstream production guidance was narrowed to 1.79-1.89 million boe/d from 1.7-1.9 million boe/d in the prior quarter, slightly above a consensus of 1.8 million boe/d. 

Operating expenses are forecast at $1.9-2.5 billion, DD&A at $2.3-2.9 billion, and taxes at $1.5-2.3 billion. Adjusted earnings reflect a $0.2-0.4 billion reduction from the rebalancing of interests in Brazil’s Tupi field.

Marketing sales volumes are projected at 2.65-3.05 million boe/d, compared with 2.6-3.1 million boe/d in the previous quarter and a consensus of 2.9 million boe/d. Adjusted earnings in marketing are expected to be higher quarter over quarter and in line with estimates.

In chemicals and products, Shell expects a refining margin of $11.6 per barrel, up from $8.9 in the second quarter and above a consensus of $9.5. Utilization is projected at 94-98%, compared with guidance of 88-96% and 94% in the previous quarter. 

Jefferies said the chemicals segment is expected to be a loss, with margins at $160 per tonne, compared with $166 per tonne in the second quarter. 

Adjusted earnings are forecast between -$0.2 billion and $0.4 billion, versus a consensus of $0.06 billion and a second-quarter loss of $0.09 billion.

Shell’s cash flow from operations anticipates tax payments of $2.1-2.9 billion. Shell expects that changes in derivatives could either reduce or increase cash flow by up to $2 billion.

Movements in working capital are projected to affect cash flow by between a $3 billion decrease and a $1 billion increase. 

In addition, the company anticipates marketing impairments of around $0.6 billion, related to the cancellation of the Rotterdam HEFA project.