Shell plc is set to release first-quarter results on May 4. The current Estimate for the to-be-reported quarter is a profit of $2.30 per share.
Let’s delve into the factors that might have influenced the integrated energy behemoth’s results in the March quarter. But it’s worth taking a look at SHEL’s previous-quarter performance first.
Highlights of Q4 Earnings & Surprise History
In the last reported quarter, Europe’s largest oil company beat the consensus mark, backed by stronger commodity prices, higher LNG volumes and refining margins. SHEL had reported earnings per ADS (on a current cost of supplies basis, excluding items — the market’s preferred measure) — of $2.76, well above Estimate of $2.10.
Shell beat the Estimate for earnings thrice in the last four quarters and missed in the other, resulting in an earnings surprise of 11.1%, on average. This is depicted in the graph below:
Shell PLC Unsponsored ADR Price and EPS Surprise
Shell PLC Unsponsored ADR Price and EPS Surprise
Factors to Consider
Last month, Shell released a preliminary report for the January-March period, which said that its first-quarter profits would reflect good performances from the Integrated Gas and Chemicals & Products divisions. The London-based supermajor further said that its ‘Marketing’ unit earnings would be sequentially stronger and upstream volumes would go up slightly.
Now, let’s dig into some other segment-wise selected items from that release.
Upstream
According to the latest update, Shell’s upstream production inched up 0.5% on a sequential basis in the first quarter of 2023 at the midpoint of the guidance. The supermajor is estimating its output in the range of 1,800-1,900 MBOE/d compared to 1,859 MBOE/d in the fourth quarter of 2022.
Tax charges are expected to hurt earnings in the range of $2.4-3.2 billion. Meanwhile, Shell sees the share of profit of joint ventures and associates to be around $500 million. The segment’s results are also likely to include well write-offs to the tune of $200 million. Finally, operating expense for the segment is projected at around $2.55 billion.
Integrated Gas
Shell’s LNG liquefaction volumes are expected in the range of 7-7.4 million tons, translating into an increase of around 6% sequentially on the back of more working time at its Australian facilities. Shell’s integrated gas production is expected to grow to the range of 930,000-970,000 barrels of oil equivalent per day (BOE/d) or 950,000 BOE/d at the midpoint. It was 917,000 BOE/d in the December quarter.
Per the company, first-quarter trading and optimization results in its integrated gas unit will be essentially in line with the fourth quarter of 2022. Segment operating cost is expected between $1.2 billion and $1.4 billion.
Marketing
The midpoint of management’s marketing sales volume guidance equates to 2.45 million barrels per day, lower than the 2.543 million barrels achieved in the fourth quarter of 2022. Overall, segment profits are expected to be above the quarter-ago levels, while operating expenses would be between $1.8 billion and $2.2 billion.
Chemicals & Products
The company expects a considerable gain in its Trading & Optimisation results from the fourth-quarter levels. However, as projected by Shell, the refining margin should weaken in the first quarter, with the metric falling 21% sequentially.
Meanwhile, despite surging chemical margins, realized numbers are expected to be adversely impacted primarily by the slow ramp-up of the Pennsylvania Chemicals project. Shell also forecast refinery utilization of 89-93%, operating expense of 2.6-3 billion and chemicals manufacturing plant utilization of 70-74%.
Renewables and Energy Solutions
The adjusted bottom line of this segment is expected between a profit of $100 million and $700 million.
What Does Our Model Say?
The proven model does not conclusively show that Shell is likely to beat estimates in the fourth quarter. But that’s not the case here.
$SHELL PLC(SHEL.UK)$ $SHELL PLC SPON ADS EACH REPR 2 ORD SHS(SHEL)$
Source: Zacks
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