Investing.com -- Shell (NYSE:SHEL) (BS:SHELl) posted its trading update on Monday ahead of its third-quarter 2024 results, offering a positive outlook largely driven by increased volume guidance in both its upstream and Integrated Gas divisions.
These segments are crucial earnings drivers for the company, and the updates suggest a stronger performance in the third quarter compared to earlier expectations.
In the Integrated Gas division, Shell raised its liquefaction volumes guidance to 7.3-7.7 million tonnes, up from the prior range of 6.8 to 7.4 million tonnes.
This bump in guidance aligns with forecasts flagged in last week's LNG Tanker Tracker report and reflects improved output in the quarter.
Gas trading performance is expected to remain flat quarter-on-quarter, a result that is likely to surpass market expectations. The company also provided further details on specific financial line items within this segment, forecasting operating expenses of $1.1-1.3 billion, depreciation, depletion, and amortization of $1.2-1.6 billion, and taxes between $800 million and $1.1 billion.
In the upstream segment, Shell similarly raised its production guidance, now projecting 1.74-1.84 million barrels of oil equivalent per day, compared to its previous range of 1.58-1.78 million kboed.
This upward revision is noteworthy as it surpasses RBC’s and the broader market consensus. Alongside the higher production estimates, Shell expects opex of $1.9-2.5 billion, DD&A of $2.3-2.9 billion, and taxes of $2.0-2.8 billion. Importantly, Shell has also guided for joint venture/associate income of around $100 million, which was absent from previous estimates.
In the Downstream division, Shell reported higher chemical margins quarter-on-quarter, rising to $164 per tonne from $155 per tonne in the second quarter.
Despite this, the company indicated that the Chemicals division would likely report a loss for the quarter. Refining margins also weakened to $5.5 per barrel from last quarter's levels, a result that aligns with RBC’s forecasts.
“While there are some puts and takes here, we think the positives outweigh the negatives, with both the upstream and integrated gas likely to see upgrades into 3Q reporting,” said analysts from RBC (TSX:RY) Capital Markets in a note.
Operationally, both chemicals and refining utilization rates have been reduced toward the lower end of prior guidance. Oil trading, a profit center for Shell, is expected to underperform compared to the previous quarter, which aligns with the company’s own outlook and market forecasts.
The Renewables and Energy Solutions division continues to be a more volatile component of Shell’s business. The company guided earnings between a loss of $400 million and a profit of $200 million, which is well below RBC’s estimate of $69 million and market consensus of $123 million.
This flags the ongoing challenges the company faces in scaling its low-carbon businesses profitably.
From a cash flow perspective, Shell’s guidance suggests a potential working capital release of $0-4 billion, with a neutral impact from derivatives.
Additionally, cash tax outflows for the quarter are expected to fall between $2.5 billion and $3.3 billion, which is largely in line with RBC’s $2.8 billion estimate.
“We note investor sentiment around gas trading in particular for Shell has been negative in recent weeks following commentary from the company around reducing ‘net length’ in its LNG portfolio, and with higher volumes and in-line trading results vs 2Q, we think this should provide some relief for investors,” RBC added.