What Did Shell (SHEL) Reveal in Its Update Pre Q2 Earnings?
Shell plc SHEL said that maintenance issues in the Gulf of Mexico, Norway, Malaysia and Brazil resulted in decreased output in the second quarter. The London-based supermajor further sees considerably lower contributions from liquid natural gas trading and loss in its chemicals segment. Shell also predicts writedowns of $3 billion for the second quarter though this will not influence the period’s adjusted earnings.
Now, let’s dig into some other segment-wise selected items from Friday’s release.
Upstream
According to the latest update, Shell’s upstream production fell 9.4% on a sequential basis in the second quarter of 2023 at the midpoint of the guidance. The supermajor is estimating its output in the range of 1,650-1,750 (thousand barrels of oil equivalent per day) MBOE/d compared to 1,877 MBOE/d in the first quarter of 2023, hampered by maintenance activity. Tax charges are expected to hurt earnings in the range of $1.5-2.3 billion.
Meanwhile, Shell expects the share of profit of joint ventures and associates to be around zero. The segment’s results are also likely to include well write-offs to the tune of $200 million. Finally, operating expense for the segment is projected at around $2.3 billion.
Integrated Gas
Shell’s LNG liquefaction volumes are expected in the range of 6.9-7.3 million tons, translating into a decrease of around 1.4% sequentially. Shell’s integrated gas production is expected in the range of 950,000-990,000 barrels of oil equivalent per day (BOE/d) or 970,000 BOE/d at the midpoint. It was 970,000 BOE/d in the January quarter as well.
Per the company, second-quarter trading and optimization results in its integrated gas unit will be well below the first quarter of 2023, primarily due to seasonal trends. However, the numbers will be essentially unchanged from the second quarters of 2021 and 2022. Segment operating cost is expected between $1.1 billion and $1.3 billion.
Marketing
The midpoint of management’s marketing sales volume guidance is 2.60 million barrels per day, higher than the 2.446 million barrels achieved in the first quarter of 2023. Overall, segment profits are expected to be in line with the quarter-ago levels, while operating expenses would be between $2 billion and $2.4 billion.
Chemicals & Products
The company expects a downward trajectory in its ‘Trading & Optimisation’ results from the first-quarter levels. Also, as projected by Shell, the refining margin should weaken considerably in the second quarter, with the metric falling 40% sequentially. Meanwhile, despite chemical margins improving, realized numbers are expected to show losses. Shell also forecast refinery utilization of 85-89%, operating expense of $2.7-$3.1 billion and chemicals manufacturing plant utilization of 67-71%.
Renewables and Energy Solutions
The adjusted bottom line of this segment is expected to hover between a loss of $300 million and a profit of $300 million.
Q2 Estimates
This Zacks Rank #3 (Hold) company, which consolidated its dual headquarters in London over The Hague and became a single United Kingdom (“UK”) entity last year, is slated to release second-quarter 2023 results on Jul 27. The current Zacks Consensus Estimate for Shell’s to-be-reported quarter is a profit of $1.68 per share.
Key Energy Picks
Meanwhile, investors interested in the energy sector might look at operators like Profire Energy PFIE, Smart Sand SND and Murphy USA MUSA, each currently carrying a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Profire Energy: The 2023 Zacks Consensus Estimate for Profire Energy indicates 125% year-over-year earnings per share growth. PFIE has a trailing four-quarter earnings surprise of 11.1%, on average.
Profire Energy is valued at around $59.2 million. PFIE has seen its shares drop 2% in a year.
Smart Sand: SND beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other. Smart Sand has a trailing four-quarter earnings surprise of 183.3%, on average.
SND is valued at around $72.3 million. Smart Sand has seen its shares drop 4.9% in a year.
Murphy USA: It is valued at some $6.6 billion. The Zacks Consensus Estimate for MUSA’s 2023 earnings has been revised 8.3% upward over the past 60 days.
Murphy USA beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other. MUSA shares have gained 14.3% in a year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
Profire Energy, Inc. (PFIE) : Free Stock Analysis Report
Smart Sand (SND) : Free Stock Analysis Report
Shell PLC Unsponsored ADR (SHEL) : Free Stock Analysis Report
