Shell first quarter 2024 update note
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Insights
The provided outlook for the first quarter of 2024 from Shell Group offers a glimpse into the company's performance across various segments. A Market Research Analyst would assess that the forecasted Adjusted EBITDA and Adjusted Earnings indicate the company's operational efficiency and profitability. The expected decrease in Trading & Optimisation results from an exceptional previous quarter suggests a normalization of trading gains which may affect investor sentiment. Additionally, the projected exploration well-write offs, particularly in Albania, could signal strategic shifts or reassessments of asset values, potentially impacting future capital expenditure decisions.
From a market perspective, the indicative refining and chemicals margins provide valuable insights into sectoral health. An increase from the previous quarter suggests a favorable market environment, which could translate into stronger segment performance. However, investors should be wary of the inherent volatility in these margins due to fluctuating commodity prices and global economic factors. The refinery and chemicals utilization rates are also important indicators of operational efficiency and market demand. High utilization rates often correlate with robust demand and can lead to increased profitability.
A Financial Analyst would focus on the Cash Flow From Operations (CFFO) and its components such as tax paid and derivative movements. The broad range of uncertainty in derivative movements and working capital estimations highlights the complexities of financial forecasting in the energy sector. This variability could significantly impact the company's liquidity and financial stability. The disclosed tax charges, both in terms of pre-tax depreciation and taxation charge, are critical for understanding the company's tax strategy and its effect on net income.
Furthermore, the analyst would scrutinize the adjusted earnings measure, which aims to provide a clearer picture of the company's financial health by excluding the effects of oil price changes and identified items. This metric is essential for investors to compare the company's performance across different periods without the noise of volatile external factors. The expected range in adjusted earnings for the Renewables and Energy Solutions segment, despite being a relatively small figure, reveals the company's ongoing investment in sustainable energy and the associated risks and rewards of this strategic direction.
An Energy Sector Analyst would examine the implications of the production and sales volume forecasts in the context of global energy markets. The increased production outlook for Integrated Gas and Upstream segments suggests a response to the global energy demand and the strategic positioning of the company in the market. The LNG liquefaction volumes are particularly noteworthy given the growing global reliance on LNG as a transition fuel. The projected increase in these volumes could indicate Shell's commitment to capturing market share in the burgeoning LNG market.
The exploration well-write offs signal a reevaluation of potential reserves, which is a common occurrence in the industry but can lead to short-term financial impacts. Analysts would also consider the chemicals sub-segment losses and their expected reduction, which may reflect improved operational efficiencies or market conditions. The Renewables and Energy Solutions segment's performance is a critical area to watch, as it represents the company's strategic shift towards sustainable energy solutions and the long-term viability of these investments.
The following is an update to the first quarter 2024 outlook and gives an overview of our current expectations for the first quarter. Outlooks presented may vary from the actual first quarter 2024 results and are subject to finalisation of those results, which are scheduled to be published on May 2, 2024. Unless otherwise indicated, all outlook statements exclude identified items.
See appendix for previous quarter historical data.
Integrated Gas
| $ billions | Q1’24 Outlook | Comment |
| Adjusted EBITDA: | ||
| Production (kboe/d) | 960 - 1,000 | |
| LNG liquefaction volumes (MT) | 7.2 - 7.6 | |
| Underlying opex | 1.0 - 1.2 | |
| Adjusted Earnings: | ||
| Pre-tax depreciation | 1.2 - 1.6 | |
| Taxation charge | 0.7 - 1.0 | |
| Other Considerations: | ||
| Trading & Optimisation results are expected to be strong, but significantly lower than an exceptional Q4’23. | ||
Upstream
| $ billions | Q1’24 Outlook | Comment |
| Adjusted EBITDA: | ||
| Production (kboe/d) | 1,820 - 1,920 | |
| Underlying opex | 2.3 - 2.8 | |
| Adjusted Earnings: | ||
| Pre-tax depreciation | 2.7 - 3.1 | |
| Taxation charge | 2.1 - 2.9 | Q4’23 taxation charge reflected favourable deferred tax movements, not reoccurring in Q1’24. |
| Other Considerations: | ||
| The share of profit / (loss) of joint ventures and associates in Q1’24 is expected to be ~ | ||
Marketing
| $ billions | Q1’24 Outlook | Comment |
| Adjusted EBITDA: | ||
| Sales volumes (kb/d) | 2,150 - 2,550 | |
| Underlying opex | 2.0 - 2.4 | |
| Adjusted Earnings: | ||
| Pre-tax depreciation | 0.3 - 0.7 | |
| Taxation charge | 0.1 - 0.4 | |
| Other Considerations: | ||
| Marketing results are expected to be in line with Q4’23. | ||
Chemicals & Products
| $ billions | Q1’24 Outlook | Comment |
| Adjusted EBITDA: | ||
| Indicative refining margin | ||
| Indicative chemicals margin | Chemicals sub segment losses are expected to be lower than in Q4’23. | |
| Refinery utilisation | ||
| Chemicals utilisation | ||
| Underlying opex | 2.5 - 2.9 | |
| Adjusted Earnings: | ||
| Pre-tax depreciation | 0.8 - 1.0 | |
| Taxation charge | 0.1 - 0.6 | |
| Other Considerations: | ||
| Trading & Optimisation is expected to be significantly higher than Q4’23. | ||
Renewables and Energy Solutions
| $ billions | Q1’24 Outlook | Comment |
| Adjusted Earnings | (0.1) - 0.5 |
Corporate
| $ billions | Q1’24 Outlook | Comment |
| Adjusted Earnings | (0.6) - (0.4) |
Shell Group
| $ billions | Q1’24 Outlook | Comment |
| CFFO: | ||
| Tax paid | 2.3 - 3.1 | |
| Derivative movements | (1) - 3 | Derivative movements and working capital estimations inherently have a broad range of uncertainty. |
| Working capital | (3) - 1 | |
| Other Shell Group Considerations: | ||
| - | ||
Guidance
The ‘Quarterly Databook’ contains guidance on Indicative Refining Margin, Indicative Chemicals Margin and full-year price and margin sensitivities (Link).
Consensus
The consensus collection for quarterly Adjusted Earnings, Adjusted EBITDA is per the reporting segments and CFFO at a Shell group level, managed by Vara Research, is expected to be published on April 25, 2024.
Appendix
Indicative Margins
| Q4’23 | Q1’24 Updated Outlook | |
| Indicative refining margin | ||
| Indicative chemicals margin |
Volume Data
| Q4’23 Adjusted | Q1’24 QPR Outlook | Q1’24 Updated Outlook | |
| Integrated Gas | |||
| Production (kboe/d) | 901 | 930 - 990 | 960 - 1,000 |
| LNG liquefaction volumes (MT) | 7.1 | 7.0 - 7.6 | 7.2 - 7.6 |
| Upstream | |||
| Production (kboe/d) | 1,870 | 1,730 - 1,930 | 1,820 - 1,920 |
| Marketing | |||
| Sales volumes (kb/d) | 2,508 | 2,150 - 2,650 | 2,150 - 2,550 |
| Chemicals & Products | |||
| Refinery utilisation | |||
| Chemicals utilisation |
Underlying Opex
| $ billions | Q4’23 | Q4’23 Adjusted | Q1’24 Updated Outlook |
| Production and manufacturing expenses | 6.8 | ||
| Selling, distribution and administrative expenses | 3.6 | ||
| Research and development | 0.5 | ||
| Operating Expenses (Opex) | 10.9 | 10.9 | |
| Less: Identified Items | (0.3) | ||
| Underlying Opex | 10.6 | ||
| of which: | |||
| Integrated Gas | 1.3 | 1.3 | 1.0 - 1.2 |
| Upstream | 2.8 | 2.6 | 2.3 - 2.8 |
| Marketing | 2.5 | 2.4 | 2.0 - 2.4 |
| Chemicals & Products | 2.9 | 2.9 | 2.5 - 2.9 |
| Renewables and Energy Solutions | 1.1 | 1.1 |
Depreciation, depletion and amortisation
| $ billions | Q4’23 | Q4’23 Adjusted | Q1’24 Updated Outlook |
| Depreciation, Depletion & Amortisation | 11.2 | 11.2 | |
| Less: Identified Items | 5.2 | ||
| Pre-tax depreciation (as Adjusted) | 6.0 | ||
| of which: | |||
| Integrated Gas | 2.3 | 1.5 | 1.2 - 1.6 |
| Upstream | 3.9 | 3.0 | 2.7 - 3.1 |
| Marketing | 0.9 | 0.5 | 0.3 - 0.7 |
| Chemicals & Products | 3.4 | 1.0 | 0.8 - 1.0 |
| Renewables and Energy Solutions | 0.7 | 0.1 |
Tax Charge
| $ billions | Q4’23 | Q4’23 Adjusted | Q1’24 Updated Outlook |
| Taxation Charge | 1.1 | 1.1 | |
| Less: Identified Items and Cost of supplies adjustment | (1.0) | ||
| Taxation Charge (as Adjusted) | 2.1 | ||
| of which: | |||
| Integrated Gas | 0.8 | 1.1 | 0.7 - 1.0 |
| Upstream | 1.5 | 1.6 | 2.1 - 2.9 |
| Marketing | — | 0.1 | 0.1 - 0.4 |
| Chemicals & Products | (0.7) | (0.3) | 0.1 - 0.6 |
| Renewables and Energy Solutions | 0.1 | — |
Adjusted Earnings
The “Adjusted Earnings” measure aims to facilitate a comparative understanding of Shell’s financial performance from period to period by removing the effects of oil price changes on inventory carrying amounts and removing the effects of identified items. These items are in some cases driven by external factors and may, either individually or collectively, hinder the comparative understanding of Shell’s financial results from period to period. This measure excludes earnings attributable to non-controlling interest. For further details see the 4th Quarter 2023 and full year unaudited results (Link).
| $ billions | Q4’23 | Q4’23 Adjusted | Q1’24 Updated Outlook |
| Income/(loss) attributable to Shell plc shareholders | 0.5 | 0.5 | |
| Add: Current cost of supplies adjustment attributable to Shell plc shareholders | 0.8 | ||
| Less: Identified items attributable to Shell plc shareholders | (6.0) | ||
| Adjusted Earnings | 7.3 | ||
| of which: | |||
| Renewables and Energy Solutions | (0.3) | 0.2 | (0.1) - 0.5 |
| Corporate | (0.6) | (0.6) | (0.6) - (0.4) |
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Cautionary Note
The companies in which Shell plc directly and indirectly owns investments are separate legal entities. In this announcement “Shell”, “Shell Group” and “Group” are sometimes used for convenience where references are made to Shell plc and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also used to refer to Shell plc and its subsidiaries in general or to those who work for them. These terms are also used where no useful purpose is served by identifying the particular entity or entities. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this announcement refer to entities over which Shell plc either directly or indirectly has control. The term “joint venture”, “joint operations”, “joint arrangements”, and “associates” may also be used to refer to a commercial arrangement in which Shell has a direct or indirect ownership interest with one or more parties. The term “Shell interest” is used for convenience to indicate the direct and/or indirect ownership interest held by Shell in an entity or unincorporated joint arrangement, after exclusion of all third-party interest.
The numbers presented in this announcement may not sum precisely to the totals provided and percentages may not precisely reflect the absolute figures due to rounding.
Forward-Looking Statements
This announcement contains forward-looking statements (within the meaning of the U.S. Private Securities Litigation Reform Act of 1995) concerning the financial condition, results of operations and businesses of Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as “aim”; “ambition”; ‘‘anticipate’’; ‘‘believe’’; “commit”; “commitment”; ‘‘could’’; ‘‘estimate’’; ‘‘expect’’; ‘‘goals’’; ‘‘intend’’; ‘‘may’’; “milestones”; ‘‘objectives’’; ‘‘outlook’’; ‘‘plan’’; ‘‘probably’’; ‘‘project’’; ‘‘risks’’; “schedule”; ‘‘seek’’; ‘‘should’’; ‘‘target’’; ‘‘will’’; “would” and similar terms and phrases. There are a number of factors that could affect the future operations of Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this announcement, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, judicial, fiscal and regulatory developments including regulatory measures addressing climate change; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; (m) risks associated with the impact of pandemics, such as the COVID-19 (coronavirus) outbreak, regional conflicts, such as the Russia-Ukraine war, and a significant cybersecurity breach; and (n) changes in trading conditions. No assurance is provided that future dividend payments will match or exceed previous dividend payments. All forward-looking statements contained in this announcement are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional risk factors that may affect future results are contained in Shell plc’s Form 20-F for the year ended December 31, 2023 (available at www.shell.com/investors/news-and-filings/sec-filings.html and www.sec.gov). These risk factors also expressly qualify all forward-looking statements contained in this announcement and should be considered by the reader. Each forward-looking statement speaks only as of the date of this announcement, April 5, 2024. Neither Shell plc nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this announcement.
Shell’s Net Carbon Intensity
Also, in this announcement we may refer to Shell’s “Net Carbon Intensity” (NCI), which includes Shell’s carbon emissions from the production of our energy products, our suppliers’ carbon emissions in supplying energy for that production and our customers’ carbon emissions associated with their use of the energy products we sell. Shell’s NCI also includes the emissions associated with the production and use of energy products produced by others which Shell purchases for resale. Shell only controls its own emissions. The use of the terms Shell’s “Net Carbon Intensity” or NCI are for convenience only and not intended to suggest these emissions are those of Shell plc or its subsidiaries.
Shell’s net-zero emissions target
Shell’s operating plan, outlook and budgets are forecasted for a ten-year period and are updated every year. They reflect the current economic environment and what we can reasonably expect to see over the next ten years. Accordingly, they reflect our Scope 1, Scope 2 and NCI targets over the next ten years. However, Shell’s operating plans cannot reflect our 2050 net-zero emissions target, as this target is currently outside our planning period. In the future, as society moves towards net-zero emissions, we expect Shell’s operating plans to reflect this movement. However, if society is not net zero in 2050, as of today, there would be significant risk that Shell may not meet this target.
Forward-Looking Non-GAAP measures
This announcement may contain certain forward-looking non-GAAP measures such as IFRS, including Adjusted Earnings, “Adjusted EBITDA”, Cash flow from operating activities excluding working capital movements, Cash capital expenditure, Net debt and Underlying opex.
Adjusted Earnings and Adjusted EBITDA are measures used to evaluate Shell’s performance in the period and over time.
The “Adjusted Earnings” and Adjusted EBITDA are measures which aim to facilitate a comparative understanding of Shell’s financial performance from period to period by removing the effects of oil price changes on inventory carrying amounts and removing the effects of identified items.
Adjusted Earnings is defined as income/(loss) attributable to shareholders adjusted for the current cost of supplies and excluding identified items. “Adjusted EBITDA (CCS basis)” is defined as “Income/(loss) for the period” adjusted for current cost of supplies; identified items; tax charge/(credit); depreciation, amortisation and depletion; exploration well write-offs and net interest expense. All items include the non-controlling interest component.
Cash flow from operating activities excluding working capital movements is a measure used by Shell to analyse its operating cash generation over time excluding the timing effects of changes in inventories and operating receivables and payables from period to period. Working capital movements are defined as the sum of the following items in the Consolidated Statement of Cash Flows: (i) (increase)/decrease in inventories, (ii) (increase)/decrease in current receivables, and (iii) increase/(decrease) in current payables. Cash capital expenditure is the sum of the following lines from the Consolidated Statement of Cash flows: Capital expenditure, Investments in joint ventures and associates and Investments in equity securities. Net debt is defined as the sum of current and non-current debt, less cash and cash equivalents, adjusted for the fair value of derivative financial instruments used to hedge foreign exchange and interest rate risks relating to debt, and associated collateral balances. Underlying operating expenses is a measure of Shell’s cost management performance and aimed at facilitating a comparative understanding of performance from period to period by removing the effects of identified items, which, either individually or collectively, can cause volatility, in some cases driven by external factors. Underlying operating expenses comprises the following items from the Consolidated statement of Income: production and manufacturing expenses; selling, distribution and administrative expenses; and research and development expenses and removes the effects of identified items such as redundancy and restructuring charges or reversals, provisions or reversals and others.
We are unable to provide a reconciliation of these forward-looking Non-GAAP measures to the most comparable GAAP financial measures because certain information needed to reconcile those Non-GAAP measures to the most comparable GAAP financial measures is dependent on future events some of which are outside the control of Shell, such as oil and gas prices, interest rates and exchange rates. Moreover, estimating such GAAP measures with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort. Non-GAAP measures in respect of future periods which cannot be reconciled to the most comparable GAAP financial measure are calculated in a manner which is consistent with the accounting policies applied in Shell plc’s consolidated financial statements.
The contents of websites referred to in this announcement do not form part of this announcement.
We may have used certain terms, such as resources, in this announcement that the United States Securities and Exchange Commission (SEC) strictly prohibits us from including in our filings with the SEC. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website www.sec.gov.
LEI number of Shell plc: 21380068P1DRHMJ8KU70
FAQ
What are the expected LNG liquefaction volumes for the first quarter 2024 for Shell (SHEL)?
What is the indicative refining margin for Shell (SHEL) in the first quarter 2024?
What are the expected sales volumes for Marketing in the first quarter 2024 for Shell (SHEL)?
What is the expected adjusted earnings range for Renewables and Energy Solutions in the first quarter 2024 for Shell (SHEL)?
What is the outlook for Corporate adjusted earnings in the first quarter 2024 for Shell (SHEL)?
