Shell second quarter 2024 update note
Shell has released its second quarter 2024 update, outlining expected performance metrics ahead of final results on August 1, 2024. In Integrated Gas, expected production ranges from 940-980 kboe/d, with LNG liquefaction volumes between 6.8-7.2 MT. Upstream production is anticipated at 1,720-1,820 kboe/d. Marketing sales volumes are projected between 2,700-3,100 kb/d, while Chemicals & Products refining margins are at $8/bbl, and chemicals margins are $155/tonne. Non-cash post-tax impairments of $1.5-$2 billion are predicted, mainly from the Singapore Chemicals & Products assets and Rotterdam HEFA. The company also expects Q2 exploration well write-offs of ~$0.2 billion. Overall, the group's tax paid is estimated between $3.1-$3.9 billion, with derivative movements and working capital estimates having broad uncertainty ranges.
- Upstream production expected between 1,720-1,820 kboe/d.
- Chemicals & Products refining margins projected at $8/bbl, chemicals margins at $155/tonne.
- Non-cash post-tax impairments expected between $1.5-$2 billion.
- Exploration well write-offs anticipated at ~$0.2 billion.
Insights
Shell's second quarter 2024 update reveals insightful financial adjustments and forward-looking estimations that merit closer examination. Several key factors emerge from the update, including projected Adjusted EBITDA spanning various segments and adjustments in production volumes and operating expenses.
Integrated Gas segment anticipates a production slightly lower compared to Q1, ranging from 940 - 980 kboe/d, with adjusted EBITDA reflecting a careful approach to operational scalability. The pre-tax depreciation and tax charge indicate a consistent fiscal structure, which suggests stability in this segment.
In the Upstream segment, the forecasted production of 1,720 - 1,820 kboe/d shows a modest decrease, attributed partially to seasonal fluctuations. The $0.2 billion write-offs in exploration wells point to a risk-aware strategy, balancing growth with prudent financial management.
For Marketing, Chemicals & Products, anticipated metrics indicate steady performance. The refined utilization rates of 91 - 95% for refineries and 78 - 82% for chemicals show robust operational efficiency despite market conditions. The outlook for indicative refining and chemical margins suggests minor improvements, though a cautious stance on market volatility is advisable.
However, Renewables and Energy Solutions display a mixed outlook with adjusted earnings ranging from ($0.5) to $0.1 billion. This variability underscores the ongoing challenges and investment-heavy nature of this segment, which is important for long-term sustainability.
Given these insights, while the short-term outlook is nuanced with several moderate adjustments, the long-term strategies and risk assessments appear sound for Shell.
Analyzing the market implications, Shell's update suggests a mixed impact across different business segments. The expected inline results for Trading & Optimization and Marketing from Q1'24 indicate stable market position. The refining margins experiencing a dip to $8/bbl from $12/bbl in Q1, alongside a slight improvement in chemical margins, reflect current global market pressures and demand shifts.
Notably, the projections for the Integrated Gas segment maintain consistency, suggesting Shell's resilience in this sector. However, the anticipated exploration well write-offs of $0.2 billion in Upstream could indicate a more conservative approach to new ventures amidst fluctuating oil prices.
The forecasted non-cash post-tax impairments for Singapore Chemicals & Products and Rotterdam HEFA signify strategic recalibration, arguably optimizing Shell's portfolio for future market conditions. This might reflect Shell's efforts to streamline operations and mitigate asset-related risks, though it also points to short-term financial adjustments.
Overall, the data points to a balanced approach, reinforcing Shell's market adaptability while highlighting areas of cautious optimization and strategic investment in renewable energy solutions.
The following is an update to the second quarter 2024 outlook and gives an overview of our current expectations for the second quarter. Outlooks presented may vary from the actual second quarter 2024 results and are subject to finalisation of those results, which are scheduled to be published on August 1, 2024. Unless otherwise indicated, all outlook statements exclude identified items.
See appendix for previous quarter historical data.
Integrated Gas
| $ billions | Q2’24 Outlook | Comment |
| Adjusted EBITDA: | ||
| Production (kboe/d) | 940 - 980 | |
| LNG liquefaction volumes (MT) | 6.8 - 7.2 | |
| Underlying opex | 1.0 - 1.2 | |
| Adjusted Earnings: | ||
| Pre-tax depreciation | 1.2 - 1.6 | |
| Taxation charge | 0.8 - 1.1 | |
| Other Considerations: | ||
| Trading & Optimisation results are expected to be in line with Q2’23, but lower compared to Q1’24 due to seasonality. | ||
Upstream
| $ billions | Q2’24 Outlook | Comment |
| Adjusted EBITDA: | ||
| Production (kboe/d) | 1,720 - 1,820 | |
| Underlying opex | 2.1 - 2.7 | |
| Adjusted Earnings: | ||
| Pre-tax depreciation | 2.5 - 2.9 | |
| Taxation charge | 1.8 - 2.6 | |
| Other Considerations: | ||
| The share of profit / (loss) of joint ventures and associates in Q2’24 is expected to be ~ | ||
Marketing
| $ billions | Q2’24 Outlook | Comment |
| Adjusted EBITDA: | ||
| Sales volumes (kb/d) | 2,700 - 3,100 | |
| Underlying opex | 2.5 - 2.9 | |
| Adjusted Earnings: | ||
| Pre-tax depreciation | 0.3 - 0.7 | |
| Taxation charge | 0.2 - 0.5 | |
| Other Considerations: | ||
| Marketing results are expected to be in line with Q1’24. | ||
Chemicals & Products
| $ billions | Q2’24 Outlook | Comment |
| Adjusted EBITDA: | ||
| Indicative refining margin | ||
| Indicative chemicals margin | Chemicals sub segment Adjusted Earnings are expected to be close to break-even in Q2’24. | |
| Refinery utilisation | ||
| Chemicals utilisation | ||
| Underlying opex | 1.9 - 2.3 | |
| Adjusted Earnings: | ||
| Pre-tax depreciation | 0.7 - 0.9 | |
| Taxation charge | 0.1 - 0.5 | |
| Other Considerations: | ||
| Trading & Optimisation is expected to be in line with Q1’24. | ||
Renewables and Energy Solutions
| $ billions | Q2’24 Outlook | Comment |
| Adjusted Earnings | (0.5) - 0.1 |
Corporate
| $ billions | Q2’24 Outlook | Comment |
| Adjusted Earnings | (0.7) - (0.5) |
Shell Group
| $ billions | Q2’24 Outlook | Comment |
| CFFO: | ||
| Tax paid | 3.1 - 3.9 | |
| Derivative movements | (2) - 2 | Derivative movements and working capital estimations inherently have a broad range of uncertainty. |
| Working capital | (2) - 2 | |
| Other Shell Group Considerations: | ||
| Non-cash post tax impairments of | ||
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 July 25, 2024.
Appendix
Indicative Margins
For Integrated Gas Q1’24 realised prices have been restated. There is no impact of this revision on previously
reported segment financials and other key performance indicators.
| Integrated Gas Realised Prices | Q1’24 | Q1’24 Restated |
| Liquids ($/bbl) | 72.72 | 67.29 |
| Gas ($/thousand scf) | 8.86 | 7.84 |
| Chemicals & Products | Q1’24 | Q2’24 Updated Outlook |
| Indicative refining margin | ||
| Indicative chemicals margin |
Volume Data
| Q1’24 Adjusted | Q2’24 QPR Outlook | Q2’24 Updated Outlook | |
| Integrated Gas | |||
| Production (kboe/d) | 992 | 920 - 980 | 940 - 980 |
| LNG liquefaction volumes (MT) | 7.6 | 6.8 - 7.4 | 6.8 - 7.2 |
| Upstream | |||
| Production (kboe/d) | 1,872 | 1,630 - 1,830 | 1,720 - 1,820 |
| Marketing | |||
| Sales volumes (kb/d) | 2,763 | 2,700 - 3,200 | 2,700 - 3,100 |
| Chemicals & Products | |||
| Refinery utilisation | |||
| Chemicals utilisation |
Underlying Opex
| $ billions | Q1’24 | Q1’24 Adjusted | Q2’24 Updated Outlook |
| Production and manufacturing expenses | 5.8 | ||
| Selling, distribution and administrative expenses | 3.0 | ||
| Research and development | 0.2 | ||
| Operating Expenses (Opex) | 9.0 | 9.0 | |
| Less: Identified Items | (0.1) | ||
| Underlying Opex | 9.1 | ||
| of which: | |||
| Integrated Gas | 1.0 | 1.0 | 1.0 - 1.2 |
| Upstream | 2.4 | 2.4 | 2.1 - 2.7 |
| Marketing | 2.6 | 2.6 | 2.5 - 2.9 |
| Chemicals & Products | 2.1 | 2.1 | 1.9 - 2.3 |
| Renewables and Energy Solutions | 0.7 | 0.8 |
Depreciation, depletion and amortisation
| $ billions | Q1’24 | Q1’24 Adjusted | Q2’24 Updated Outlook |
| Depreciation, Depletion & Amortisation | 5.9 | 5.9 | |
| Less: Identified Items | 0.2 | ||
| Pre-tax depreciation (as Adjusted) | 5.7 | ||
| of which: | |||
| Integrated Gas | 1.4 | 1.4 | 1.2 - 1.6 |
| Upstream | 2.8 | 2.7 | 2.5 - 2.9 |
| Marketing | 0.5 | 0.5 | 0.3 - 0.7 |
| Chemicals & Products | 1.0 | 0.9 | 0.7 - 0.9 |
| Renewables and Energy Solutions | — | 0.1 |
Tax Charge
| $ billions | Q1’24 | Q1’24 Adjusted | Q2’24 Updated Outlook |
| Taxation Charge | 3.6 | 3.6 | |
| Less: Identified Items and Cost of supplies adjustment | (0.5) | ||
| Taxation Charge (as Adjusted) | 4.1 | ||
| of which: | |||
| Integrated Gas | 0.8 | 1.0 | 0.8 - 1.1 |
| Upstream | 2.1 | 2.5 | 1.8 - 2.6 |
| Marketing | 0.4 | 0.4 | 0.2 - 0.5 |
| Chemicals & Products | 0.2 | 0.3 | 0.1 - 0.5 |
| 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 1st Quarter 2024 unaudited results (Link).
| $ billions | Q1’24 | Q1’24 Adjusted | Q2’24 Updated Outlook |
| Income/(loss) attributable to Shell plc shareholders | 7.4 | 7.4 | |
| Add: Current cost of supplies adjustment attributable to Shell plc shareholders | (0.3) | ||
| Less: Identified items attributable to Shell plc shareholders | (0.6) | ||
| Adjusted Earnings | 7.7 | ||
| of which: | |||
| Renewables and Energy Solutions | 0.6 | 0.2 | (0.5) - 0.1 |
| Corporate | (0.4) | (0.5) | (0.7) - (0.5) |
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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.
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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, July 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.
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