8th Jan 2024 10:52
(Alliance News) - Shell PLC shares fell on Monday after the oil major narrowed its production outlook for the fourth quarter of 2024, with analysts citing a context of falling oil prices.
Shell said it anticipated paying less tax but significantly higher impairment charges of between USD2.5 billion and USD4.5 billion in impairment charges for the quarter, compared to the USD700 million it reported for the fourth quarter of 2022.
Shell said the impairments for the most recent quarter are driven by portfolio choices, such as its Singapore Chemicals & Productions assets, which Reuters had reported Shell plans to sell by the end of 2024.
AJ Bell noted a weak performance in Shell's chemical division as being "compounded" by the plans to sell the Singapore refining hub.
Shell expects to pay between USD3.4 billion and USD4.2 billion in tax for the fourth quarter of 2023, down from USD4.37 billion in 2022's final quarter.
"The usual teaser for Shell's quarterly results did little to enthuse investors as Saudi Arabia's decision to cut crude prices dampened sentiment towards the sector," said AJ Bell analyst Russ Mould.
"If it wasn't for the threat of disruption to supplies thanks to tensions in the Middle East, one might have expected crude prices to come under sustained pressure as inventories and production build and signs of demand weakness emerge."
Brent crude oil fell to USD77.00 a barrel on Monday morning from USD78.82 a barrel at the London equities close on Friday. Over the last three months, prices have fallen 8.7%.
Mould continued: "Shell has been a beneficiary of higher commodity prices over the approximate two years which have followed Russia's invasion of Ukraine. The company needs to show it can deliver when market conditions aren't so helpful."
For Integrated Gas, Shell expects production of 880,000 to 920,000 barrels of oil per day, compared to 917,000 a year prior. Trading and optimisation in the division is expected to be "significantly higher" than the prior quarter, due to "seasonality and increased optimisation opportunities.
For Upstream, it expects production between 1.83 and 1.93 million barrels of oil equivalent per day, a narrowed outlook range from 1.75 million to 1.95 million barrels it gave for the fourth quarter of 2023 back in November. In the fourth quarter of 2022, Upstream had produced 1.86 million barrels of oil per day.
"Shell's trading update for [the fourth quarter] was mixed, overall. The performance indicators were mixed and there are some cashflow headwinds," said UBS analysts Henri Patricot and Christabel Kelly.
"On the Upstream side, performance is slightly better: guidance for total production is now [2.71 million barrels per day], up marginally at the midpoint versus guidance given at [the third quarter] and 1% above consensus [of 2.76 million barrels per day, compared to UBS estimate of 2.82 million barrels per day]. In Integrated Gas, the company expects the contribution from gas trading to be significantly higher quarter-on-quarter, thanks to seasonality and optimisation opportunities. This is above expectations, we believe."
AJ Bell's Mould commented: "At least Shell can lean on its big integrated gas arm. Though news its performance improved in the fourth quarter – when many of the world's big consumers of natural gas are facing seasonally cold temperatures – hardly feels like a big revelation."
UBS rates Shell at 'buy' with a price target of 3,000 pence.
UBS said this price target uses a 2024 estimated enterprise value against debt-adjusted cash flow of 5.0 times, normalised for Brent at USD75 per barrel and EU gas or liquefied natural gas at USD10 per million British thermal units.
Shares in Shell were down 1.9% to 2,521.50p each in London on Monday morning.
Looking ahead, AJ Bell said Shell Chief Executive Officer Wael Sawan has "a lot to do" for Shell to catch up on the equity valuation enjoyed by rivals in the US "who have been less committed to a green agenda full stop".
Shell has a market capitalisation of GBP163.94 billion, compared to US counterparts Exxon Mobil Corp and Chevorn Corp's market caps of USD406.71 billion and USD283.06 billion respectively.
"A year into the job, chief executive Wael Sawan has hinted at a more pragmatic approach to the energy transition with any investments having to stand on their own merits," said AJ Bell's Mould.
"This may have been encouraging news for some shareholders but pressure will mount from other quarters for the company not to backslide further on its net zero commitments."
By Greg Rosenvinge, Alliance News senior reporter
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