Shell projects $40m deficit in first quarter upstream earnings

OpeOluwani Akintayo

Lagos — Oil and gas multinational, Shell said it expects its total adjusted upstream earnings to be adversely impacted by up to $40 million in the first quarter of 2021.

In its first-quarter update note released on Wednesday, it explained reason for the drop in earnings to be due to operational impacts of the Texas winter storm.

According to the British firm, its upstream adjusted earnings are expected to be positive in the first quarter as a result of recent increase in price of oil at the international market.

International Brent sold for $62.79 per barrel at 11:28 AM Nigerian time on Thursday.

Brent had climbed from $ 49.99 per barrel last December, to 54.77$p/b in January, $62.28p/b, and $65.41 in March.

Other upstream highlights include expected between production of 2,400 and 2,475 thousand barrels of oil equivalent per day, including 10 to 20 thousand barrels per day lower production due to the Texas winter storm.

Its pre-tax depreciation is expected to be between $3.1 and $3.4 billion, with currency effects expected to adversely impact adjusted earnings by up to $200 million.

Tax expenses are expected to be between $700 and $1,100 million, and tax paid to be between $500 and $750 million.

Working capital outflows as expected due to increased receivables reflecting the higher commodity price environment.

Shell will on Thursday, April 29th 2021 at 07:00 BST (08:00 CEST and 02:00 EDT) release its first-quarter results and first quarter interim dividend announcement for 2021.

Integrated Gas

• Production is expected to be between 920 and 960 thousand barrels of oil equivalent per day.
• LNG liquefaction volumes are expected to be between 7.8 and 8.4 million tonnes.
• Pre-tax depreciation is expected to be between $1.3 and $1.4 billion.
• Trading and optimisation results are expected to be significantly below average.
• Approximately 80% of our term sales of LNG in 2020 have been oil price linked with a price-lag of up to 6 months. The volatility of the JKM spot price in January had limited impact on Adjusted Earnings.
• Operational and net financial impact from the Texas winter storm is expected to be limited as trading margins are offset by provisions due to related counterparty credit risk.
• CFFO is expected to be impacted by a working capital outflow driven by increased receivables reflecting the higher commodity price environment.
• CFFO excluding working capital is expected to be not significantly impacted by cash flows related to commodity derivatives.

Oil Products

• Refinery utilisation is expected to be between 71% and 75%. Latest refinery crude distillation capacities are provided in the 2020 Annual Report, replacing calendar day with stream day.
• Refining indicative margin is around $2.6/bbl, slightly improved from $1.6/bbl in the fourth quarter 2020. Definition and formula are provided at the end of this release.
• Trading and optimisation results are expected to be average and higher than the fourth quarter 2020.
• Sales volumes are expected to be between 3,700 and 4,700 thousand barrels per day.
• Marketing results are expected to be higher compared with the fourth quarter 2020, as higher margins and lower costs are more than offsetting lower sales volumes.
• Pre-tax depreciation is expected to be between $0.9 and $1.1 billion.
• Total Adjusted Earnings are expected to be adversely impacted by up to $80 million due to operational impacts of the Texas winter storm.
• Working capital outflows are expected due to the higher commodity price environment.
• CFFO excluding working capital is expected to be positively impacted by the lower cash cost of sales.

Chemicals

• Chemicals Adjusted Earnings are expected to be positively impacted by improved base margins and slightly higher intermediate margins compared with the fourth quarter 2020.
• Chemicals manufacturing plant utilisation is expected to be between 77% and 81%.
• Chemicals sales volumes are expected to be between 3,500 and 3,700 thousand tonnes.
• Pre-tax depreciation is expected to be between $250 and $350 million.
• Total Adjusted Earnings are expected to be adversely impacted by around $60 million due to operational impacts of the Texas winter storm.
• CFFO is expected to be negatively impacted by $150 to $250 million due to timing effect of dividends received from Joint Ventures & Associates.

Corporate

Corporate segment Adjusted Earnings are expected to be a net expense of $600 to $700 million for the first quarter. This excludes the impact of currency exchange effects.

Shell enhancing financial disclosures
At its first-quarter 2021 results announcement, Shell said it will provide enhanced voluntary disclosures in a Quarterly Databook. The disclosures will cover Integrated Gas, Upstream, Refining & Trading, Marketing and Chemicals. The publication of the enhanced disclosures will be followed by a webcast on the 4th of May 2021, with an opportunity for questions and answers.

 Full-year price and margin sensitivities

The Adjusted Earnings and CFFO price and margin sensitivities are indicative and in relation to the full-year results. These exclude the short-term impacts from working capital movements, cost-of-sales adjustments, and derivatives. Sensitivity accuracy is subject to trading and optimisation performance, including short-term opportunities, depending on market conditions.