Shell guides to lower oil production in second quarter

Shell PLC anticipates a Q2 upstream oil production decrease to 1.66-1.76 million barrels of oil equivalent per day (Mboe/d) from 1.86 Mboe/d in Q1, primarily due to scheduled maintenance and the sale of its Nigerian joint venture. The company expects higher marketing adjusted earnings and improved refining margins, projected to reach $8.90 per barrel. However, the Chemicals & Products segment is guided to be below break-even, with the chemicals sub-segment anticipating a loss, while the Renewables & Energy Solutions arm is forecast to range from a $0.4 billion loss to a $0.2 billion profit.

Analysis

Shell's pre-release guidance for the second quarter signals a mixed operational performance, headlined by a notable downturn in upstream production. The company anticipates upstream output to decline to a range of 1.66-1.76 million barrels of oil equivalent per day (Mboe/d), down from 1.86 Mboe/d in the first quarter, attributing the drop to scheduled maintenance and the divestment of its Nigerian onshore joint venture. In contrast, integrated gas production and LNG liquefaction volumes are projected to remain relatively stable. The downstream segment presents a divergent picture: while Marketing adjusted earnings are expected to improve and refining margins are forecast to rise to $8.90 per barrel, the Chemicals & Products segment is guided to post adjusted earnings below break-even, with the chemicals sub-segment specifically anticipating a loss. Compounding the pressure, contributions from trading and optimisation are also expected to be lower. The Renewables & Energy Solutions division reflects significant uncertainty, with guidance spanning a wide range from a $0.40 billion loss to a $0.20 billion profit, highlighting the volatility in this transitioning business.

Key Decisions for Investors

• Investors should treat the Q2 upstream production decline as largely transient, but must seek confirmation in the full July 31 results regarding the timeline for volume recovery post-maintenance.
• Given the bifurcation in downstream performance, focus should be on whether the strength in refining margins and marketing can sufficiently offset the guided losses in chemicals and lower trading contributions to protect overall profitability.
• The wide guidance range for the Renewables & Energy Solutions arm underscores earnings volatility; this segment's path to consistent profitability should be monitored closely as a key risk and long-term value driver.
• Consider trimming or hedging positions ahead of the full earnings release if exposure to chemicals or sensitivity to trading results is a primary concern, as these segments are flagged as significant drags on Q2 performance.