ii view: Shell predicts record refining margin and surge in gas output

Having just made its biggest acquisition since 2015, gas production is set to rise sharply. Buy, sell, or hold?

7th October 2026 13:12

by Keith Bowman from interactive investor

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Third-quarter trading update to 30 September

Expects a refining margin of $42 bbi (per barrel) in Q3, up from $24 in Q2
Now expects integrated gas production of 740-780 thousand barrels of oil equivalent per day (Kboe/d), up from 631 Kboe/d in Q2
Now expects LNG (liquefied natural gas) volumes of 7.2-7.6 metric tonnes (MT), narrowed from a previous forecast of 7.1-7.7 MT
Now expects upstream oil production of 1,735 to 1,835 Kboe/d, adjusted from a previous forecast of 1,680-1,880 Kboe/d.

ii round-up:

Energy major Shell (LSE:SHEL) today predicted an increased refining margin but higher net debt higher following the completed takeover of Canadian producer ARC Resources.

An expected third-quarter refining margin of $42 per barrel is up from the $24 achieved in the second quarter. Expected quarterly integrated gas production of 740-780 thousand barrels of oil equivalent per day (Kboe/d) is up from 631 Kboe/d in Q2 and now includes output from ARC Resources.

Shares in the FTSE 100 giant rose by 0.5% in UK trading having come into this latest news up by a third so far in 2026. That’s similar to rival BP (LSE:BP.). A war in the Middle East has caused the price of oil to rocket by two-thirds year-to-date to around $100 a barrel.

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Expectations for third-quarter LNG (liquefied natural gas) volumes has been narrowed to between 7.2 and 7.6 metric tonnes (MT) from 7.1-7.7 MT.

Forecast third-quarter upstream oil production of 1,735-1,835 Kboe/d is tightened from a previous 1,680-1,880 Kboe/d estimate.

In late April, Shell announced the $13.9 billion purchase of Canada’s ARC Resources, its biggest acquisition since acquiring BG Group in 2015. The takeover adds approximately 370,000 barrels of oil equivalent per day (boepd) to Shell's production.

Broker Jefferies reiterated its ‘buy’ rating on the shares post the update with a target price of £45 per share.

Q3 results are scheduled for 29 October.

ii view:

In 2021, the former Royal Dutch Shell changed its name to Shell. Alongside exploration and production operations (so-called upstream), downstream operations (refining crude oil and marketing) serve around 29 million retail customers a day. Shell's electric vehicle (EV) charge points total around 88,000. Group competitors include TotalEnergies SE (EURONEXT:TTE) and ExxonMobil Holdings Corp (NYSE:XOM).

For investors, hindered production and higher costs caused by the war in the Middle East are not to be ignored. Higher inflation because of the spike in energy prices may now mean interest rates stay higher for longer, dampening future economic activity and reducing energy demand. A first-quarter rebalancing of returns to shareholders reduces total distributions, while further energy price volatility may accelerate government moves globally to diversify energy supplies with switches to alternatives such as nuclear power.

On the upside, shipping supply challenges via the Strait of Hormuz offer ongoing support to fossil fuel prices. Strategic focuses outlined in March 2025 include becoming the world’s leading integrated gas and LNG business, as well as making Shell simpler, more resilient and more competitive. Structural cost reductions total over $5 billion since 2022, while a diversity of operations regularly allows one area of strength to counter another of weakness.

On balance, extremes of energy price volatility from pandemic lows to war related highs give room for caution. That said, the world’s addiction to fossil fuels and forecast dividend yield of around 3.2% continue to leave Shell worthy of its place in many investor portfolios.

Positives:

Diversity of operations
Focus on shareholder returns

Negatives:

Uncertain economic outlook
The weather can raise operational challenges

The average rating of stock market analysts:

Strong hold

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