ii view: Shell shares rocked by downbeat Q2 update

Second-quarter trading update to 30 June

ii round-up:

Oil and gas major Shell (LSE:SHEL) today warned that second-quarter profits from its trading operations was likely to be lower than expected, while gas production estimates are also reduced ahead of results scheduled for 31 July.

Second-quarter integrated gas production to the end of June is now expected to come in at 900-940 thousand barrels of oil equivalent per day (kboe/d), down from the group’s previous estimate of 890-950 kboe/d. 

Shares in the FTSE 100 company fell 2% in UK trading, with the update following a decision over the weekend by the group of countries forming OPEC+ to increase production for August by more than expected. The price of oil fell around 1% in early trading Monday having fallen around 9% so far in 2025. Shell shares are up around 5% year-to-date. 

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Shell’s various divisions include integrated gas, chemicals and products and renewables and energy solutions. Volumes of Liquefied Natural Gas (LNG) for the quarter are now expected to come in at up to 6.8 million tonnes (MT), down from a previous estimate of up to 6.9 MT, although that would be better than output of 6.6 MT during the previous first quarter. 

Earlier this year, Shell flagged its ambition to become the world’s leading integrated gas and LNG business. The price of natural gas is down around 5% so far this year. 

Upstream oil production for Q2 is forecast at between 1,660 and 1,760 kboe/d, marginally improved from a prior estimate of 1,560-1,760, but down from 1,855 kboe/d in Q1, hindered by planned maintenance and a previous onshore Nigerian disposal.  

Usage, or utilisation of its chemical making operations is now expected to fall by between 68% and 72%. That’s down from a previous estimate of up to 82% and lower than the 81% outcome achieved during the first quarter. 

ii view:

The FTSE 100 index constituent changed its name from Royal Dutch Shell to just Shell in 2022, moving its headquarters to the UK. Shell serves approximately one million commercial and industrial customers as well as around 33 million people daily at over 47,000 retail stations and more than 54,000 electric charging points across more than 70 countries. 

For investors, heightened global geopolitical tensions and potential for operational disruption should not be forgotten. Raised trade tariffs reducing demand for products such as cars and therefore required production energy usage warrant consideration. Tackling climate change remains a pressing need for both the industry and governments alike, while weather events such as storms can impact production. 

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More favourably, changes in strategy, including exploration only in regions where hydrocarbons have already been found, is allowing capital expenditure to reduce and helping shareholder returns to be maintained. Shell’s diversity of operations across oil, gas, chemicals, and retailing regularly allows one area of strength to counter another of weakness. Management’s previous estimate that the dividend could be sustained even with the oil price as low as $40 per barrel - currently $67 - is noteworthy, while a focus on reducing costs is ongoing. 

In all, and despite continuing risks, a consensus analyst estimate of fair value above £30 per share combined with a forecast future dividend yield of around 4%, is likely to keep long-term investors onboard.  

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:

Buy