Shell second quarter 2022 update note
July 07, 2022 02:00 ET | Source: Shell plc
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The following is an update to the second quarter 2022 outlook. Impacts presented may vary from the actual results and are subject to finalisation of the second quarter 2022 results, published on July 28, 2022. Unless otherwise indicated, all outlook statements exclude identified items.
This update note follows the new reporting segmentation implemented at the first quarter 2022 results. For further details around the new reporting segmentation and the enhanced disclosures for our Growth businesses refer to www.shell.com/investors/results-and-reporting/...esults/2022/q1-2022.
Consensus collection will follow the new reporting segmentation format.
Integrated Gas
Adjusted EBITDA
Production is expected to be between 930 and 980 thousand barrels of oil equivalent per day.
LNG liquefaction volumes are expected to be between 7.4 and 8.0 million tonnes, reflecting the derecognition of Sakhalin related volumes.
Trading and optimisation results for Integrated Gas are expected to be lower compared to the first quarter 2022, which had exceptional trading optimisation opportunities.
Sakhalin results derecognition is expected to have a negative impact of $300 to $350 million.
Underlying Opex is expected to be between $1.1 and $1.3 billion.
Additionally one-off charges of around $200 million are expected including well write offs, provisions and commercial settlements.
Adjusted Earnings
Pre-tax depreciation is expected to be between $1.3 and $1.5 billion.
Taxation charge is expected to be between $1.2 and $1.5 billion.
Upstream
Adjusted EBITDA
Production is expected to be between 1,850 and 1,950 thousand barrels of oil equivalent per day, reflecting higher scheduled maintenance.
Underlying Opex is expected to be between $2.4 and $2.8 billion.
The share of profit of joint ventures and associates is expected to include a gain between $500 and $700 million relating to portfolio, storage and working gas transfer effects.
Adjusted Earnings
Pre-tax depreciation is expected to be between $2.9 and $3.3 billion.
Taxation charge is expected to be between $2.8 and $3.4 billion.
Marketing
Adjusted EBITDA
Marketing results are expected to be higher than the first quarter 2022 and in line with the second quarter 2021.
Underlying Opex is expected to be between $1.8 and $2.0 billion.
Sales volumes are expected to be between 2,300 and 2,700 thousand barrels per day.
Adjusted Earnings
Pre-tax depreciation is expected to be between $300 and $500 million.
Taxation charge is expected to be between $200 and $400 million.
Chemicals & Products
Adjusted EBITDA
The indicative refining margin is $28.04/bbl, compared to $10.23/bbl in the first quarter 2022; the increased margin is expected to have a positive impact of between $800 and $1,200 million on the second quarter results of Products compared to the first quarter 2022.
Indicative chemicals margin is $86/tonne, compared to $98/tonne in the first quarter 2022, leading to an expected loss for chemicals in the second quarter 2022.
Trading & Optimisation results are expected to be strong in the second quarter 2022 although lower than the first quarter 2022.
Refinery utilisation and Chemicals utilisation are both expected to be within the outlook ranges provided with the first quarter 2022 results announcement.
Underlying Opex is expected to be between $2.4 and $2.8 billion.
Chemical sales volumes are expected to be between 3,000 and 3,400 thousand tonnes.
Adjusted Earnings
Pre-tax depreciation is expected to be between $600 and $800 million.
Taxation charge is expected to be between $300 to $700 million.
Renewables and Energy Solutions
Renewables and Energy Solutions Adjusted Earnings are expected to be between $400 and $900 million for the second quarter, benefiting from higher trading and optimisation margins for gas and power due to continued exceptional market environment in various markets.
Corporate
Corporate segment Adjusted Earnings are expected to be a net expense of $500 to $700 million for the second quarter.
Shell Group
CFFO
Tax paid is expected to be between $3.3 and $3.7 billion.
As of the end of May, CFFO was impacted by working capital outflows of around $6 billion. Prevailing volatility could lead to material additional movements in CFFO in June from price impacts on inventory, changes in inventory volumes, margining effects on derivatives and movements in accounts payable and receivables balances.
Share Buybacks
The share buyback programme of $8.5 billion announced for the first half of 2022 was completed on July 05, 2022.
Revised commodity price outlook and impairment impacts
In the second quarter 2022, Shell has revised its mid and long-term Oil and Gas commodity prices reflecting the current macroeconomic environment as well as updated energy market demand and supply fundamentals. This resulted in a review of Shell’s Upstream and Integrated Gas previously impaired assets.
The following Brent outlook has been assumed for impairment reversal testing: $80/bbl (2023), $70/bbl (2024), $70/bbl (2025) and long-term $65 (real terms 2022).
Aggregate post-tax impairment reversals in the range of $3.5 to $4.5 billion of previously impaired assets are expected in the second quarter, primarily due to changes in commodity price outlook.
Impairment reversals are reported as identified items and have no cash impact.
Full-year price and margin sensitivities
The Adjusted Earnings and CFFO price and margin sensitivities are indicative and subject to change. These are in relation to the full-year results and exclude short-term impacts from working capital movements, production seasonality, cost-of-sales adjustments and derivatives. Sensitivity accuracy is subject to trading and optimisation performance, including short-term opportunities, depending on market conditions. These sensitivities are reviewed and updated annually in the fourth quarter.
Marker sensitivity Adjusted Earnings
$ million CFFO
$ million
Integrated Gas
+$10/bbl Brent 1,000 1,000
+$10/bbl Japan Customs-cleared Crude - 3 months 1,100 1,200
Upstream§
+$10/bbl Brent 2,500 3,000
+$1/mmbtu Henry Hub 250 325
+$1/mmbtu EU TTF 150 150
Chemicals & Products
+$1/bbl indicative refining margin 425 —
+$30/tonne indicative chemicals margin 700 —
Indicative chemicals margin
The indicative chemicals margin is an approximation of Shell’s global chemical margin performance trend (including equity-accounted associates), calculated using price markers from third parties’ databases. It is based on a simplified feedstock and product yield profile at a nominal level of plant performance and optimisation. The actual margins realised by Shell may vary due to factors including specific local market effects, chemicals plants maintenance, optimisation, operating decisions and product demand.
Actual historical indicative margins based on the enclosed indicative margin formula are available on the Chemicals & Products page in the Quarterly Data Book.
Q2 2022 Q1 2022
$86/bbl $98/bbl§
Calculation formula ($/tonne) - note that brackets indicate a negative sign. For Natural Gas a factor of 48.65mmBTU/tonne and for Ethane a factor of 17.6bbl/tonne has been assumed.
NWE TTF Natural Gas*(4.0%) + USGC Henry Hub Natural Gas*(12.5%) + USGC Mont Belvieu Ethane*(4.0%) + NWE Naphtha*(19.0%) + NWE Butane*(3.5%) + Singapore Automotive Gasoil 10ppm*(4.0)% + Singapore Fuel oil 380 cst*(1.5)% + Japan Naphtha*(9.0)% + USGC VGO_LS*(4.5)% + USGC Gasoline Regular*5.5% + NWE Propylene*6.0% + NWE Ethylene Oxide*2.5% + NWE Ethylene*5.0% + South East Asia Propylene*1.5% + South East Asia Polypropylene*3% + China Styrene*10.5% + China Propylene Oxide*3.0% + China MEG*8.0% + USGC Ethylene*4.0% + Korea Benzene*(4.0)% + $18.5/tonne
Indicative refining margin
The indicative refining margin is an approximation of Shell’s global gross refining unit margin, calculated using price markers from third parties’ databases. It is based on a simplified crude and product yield profile at a nominal level of refining performance. The actual margins realised by Shell may vary due to factors including specific local market effects, refinery maintenance, crude diet optimisation, operating decisions and product demand.
Gross refining unit margin is defined as the hydrocarbon margin net of purchased/sold utilities, additives and relevant freight costs, divided by crude and feedstock intake in barrels. It is only applicable to the impact of market pricing on refining business performance, excluding trading margin.
Actual historical indicative margins based on the 2021 indicative margin formula are available on the Refining & Trading page in the Quarterly Data Book.
Q2 2022 Q1 2022 Q4 2021 Q3 2021 Q2 2021
$28.04/bbl$10.23/bbl $6.55/bbl $5.70/bbl $4.17/bbl§
The formula provided will be reviewed quarterly and typically updated annually, reflecting any changes in our refining portfolio.
Calculation formula ($/bbl) - note that brackets indicate a negative sign
Brent*(29.0%) + MSW*(11.5%) + LLS*(16.0%) + Dubai*(33.5%) + Urals CIF EU*(7.5%) + NWE Naphtha (RDAM FOB Barge)*9.5% + NWE Mogas premium unleaded*13.0% + NWE Kero*12.0% + NWE AGO*27% + NWE Benzene*1% + Sing Fueloil 380 cst*7.5% + USGC Normal Butane*3.5% + USGC LS No 2 Gasoil*8.0% + USGC Natural Gas*(2.0%) +TTF Natural Gas*(1%)+ USGC CBOB*14.5% + RINS*(22.0%) + NWE Propylene Platts*1% – $0.92/bbl
Consensus
The consensus collection for quarterly Adjusted Earnings, Adjusted EBITDA is per the new reporting segments and CFFO at a Shell group level, managed by Vara research, will be published on 21 July 2022 .
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