ii view: Shell publishes mixed first-quarter trading update

First-quarter trading update to 31 March

ii round-up:

Energy giant Shell (LSE:SHEL) today gave a mixed update on first-quarter trading ahead of results due on 2 May.

First quarter integrated gas production is now expected to be between 960 and 1,000 thousand barrels of oil equivalent per day (kboe/d), up from a previous estimate of 930 to 990, although profit from gas trading is expected to be significantly lower than the exceptional final quarter of 2023. 

Shares in the FTSE 100 giant rose marginally in UK trading having come into this latest news up by almost a tenth year-to-date. That’s similar to rivals BP (LSE:BP.) and TotalEnergies SE (EURONEXT:TTE) and compares with a 2% improvement for the blue-chip index itself in 2024. 

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Increased geopolitical tensions combined with low oil stocks and production cuts by Saudi Arabia and other OPEC+ members have helped push the price of oil up by almost a fifth so far this calendar year.

Upstream oil production at Shell is now expected to be between 1,820 to 1,920 (kboe/d), narrower than its prior estimate of 1,730 to 1,930. 

Trading and optimisation at its chemicals and products division is estimated to be significantly higher than the prior fourth quarter, with increased usage of refineries and plants taking its indicative chemicals margin to $151 per tonne from $125 in the previous quarter.

Shell had already announced a $3.5 billion share buyback programme to be executed during the early months of 2024. 

ii view:

Started in 1907, Shell today employs more than 103,000 people across 70 countries. It serves over one million corporate and industrial customers as well as 33 million retail customers daily at over 47,000 Shell petrol stations. Geographically, Asia, Oceania and Africa account for its biggest slug of sales at 32%, followed by Europe at 23%, the US 22%, UK 14% and Americas the balance.  

For investors, the uncertain economic outlook, particularly for Asian powerhouse China, continues to cast doubt over expected future energy demand, while costs for businesses generally remain elevated. Windfall taxes introduced following higher energy prices and Russia’s invasion of Ukraine persist, while Shell’s own dialling back of investments in climate change friendly investments in 2023 does not sit comfortably with many investors.  

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On the upside, a diversity of operations across oil, gas, chemicals, and alternatives regularly allows one area of strength to counter one of weakness. Geopolitical factors such as a possible widening of the war in the Middle East offer potential support to the price of oil, while net debt which grew during the pandemic has subsequently been reduced. 

For now, and with the world arguably dragging its feet on climate change and Shell shares offering a forecast dividend yield of around 4%, there looks to remain a place for this global energy giant in portfolios of investors happy to own oil stocks.

Positives: 

• Diversity of operations
• A focus on shareholder returns

Negatives:

• Uncertain economic outlook
• The weather can raise operational challenges

The average rating of stock market analysts:

Buy