Key Highlights
- Shell increased its second-quarter integrated gas production forecast to 610,000–650,000 boe/d from the earlier 580,000–640,000 range.
- Shares of SHEL climbed over 3% during early London market hours after the announcement.
- The company anticipates gas trading performance to significantly exceed first-quarter levels, while chemicals and products trading should match Q1 results.
- Shell projects a working capital inflow between $1 billion and $6 billion for Q2, a dramatic shift from the $11.2 billion outflow experienced in Q1.
- Ongoing Middle East tensions continue to impact Qatari production volumes, with the Pearl GTL facility in Qatar remaining shut down following a March incident.
Shares of Shell (SHEL) gained more than 3% during early London market activity on Tuesday following the energy major’s decision to upgrade its second-quarter production and trading forecasts, providing investors with enhanced visibility before the company reports earnings on July 30.
The positive update propelled SHEL shares approximately 3.2% higher by mid-morning London time, significantly outpacing the 0.3% advance recorded by the broader European energy sector.
The company revised its integrated gas production forecast upward to 610,000–650,000 barrels of oil equivalent per day (boe/d) for the second quarter, an increase from its previous projection of 580,000–640,000 boe/d. Despite this improvement, the figure remains considerably lower than the 909,000 boe/d achieved in the first quarter.
The production shortfall stems primarily from operational challenges in the Middle East. Shell’s Pearl gas-to-liquids facility in Qatar has been out of service since March when an incident at Ras Laffan Industrial City damaged one of the plant’s two production trains. The restoration process is anticipated to require approximately one year.
Qatar represents roughly 10% of Shell’s total oil and gas production, which constitutes about 20% of the company’s worldwide output — approximately 550,000 boe/d from the region overall.
The company also increased its LNG liquefaction volume guidance to 7.4 million to 7.8 million metric tons for the quarter, rising from the previous estimate of 6.8 to 7.4 million tons, though still trailing the 7.9 million tons delivered in Q1.
Trading Performance and Margin Improvements
The most encouraging aspect of Shell’s update centered on trading activities. The company indicated that gas trading and optimisation performance would come in “significantly higher” than first-quarter levels, benefiting from substantial commodity price volatility linked to the ongoing Middle East situation.
Brent crude averaged approximately $97 per barrel during Q2, representing an increase from $78 in Q1 and $67 during the same period last year. European natural gas prices at the TTF benchmark averaged roughly €46 per megawatt-hour, compared to €40 in Q1 and €36 in the prior year.
Citi increased its second-quarter EPS projection for Shell by 13% after reviewing the update, characterizing it as “incrementally positive” and emphasizing robust performance in trading, chemicals, and fuels marketing divisions.
Indicative refining margins registered around $20 per barrel for the second quarter, an improvement from $17 in the first quarter. Chemical margins surged to approximately $240 per ton from $139. The company acknowledged that actual realised margins fell short of these indicative figures due to market disruptions.
Working Capital Reversal
Regarding balance sheet developments, Shell projected a working capital inflow ranging from $1 billion to $6 billion in Q2. This represents a substantial turnaround from the $11.2 billion outflow documented in the first quarter, which the company linked to “unprecedented volatility in commodity prices.”
Tax payment guidance increased to $2.6 billion to $3.4 billion, up from $2.3 billion in the previous quarter.
Upstream production guidance also received an upward adjustment to 1.75 million–1.85 million boe/d, from the earlier range of 1.62 million–1.82 million boe/d.
Refinery capacity utilisation is projected at nearly 100%, while chemicals facility utilisation is forecast at 80%–84%, marginally below the 85% achieved in Q1.
The Renewables and Energy Solutions segment’s adjusted earnings are guided within a broad range spanning from a $0.3 billion loss to a $0.3 billion profit.
Shell is set to release its second-quarter financial results on July 30. Analyst consensus estimates will be published on July 22.
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