Shell (SHEL) Sees Soaring Margins in Preliminary Q2 Earnings
Shell plc SHEL said that it expects a boost of around $1 billion to its bottom line in the second quarter from skyrocketing margins for gasoline and other energy products. The company released a preliminary report for the April-June period wherein the London-based energy biggie informed that higher profitability from crude and fuel sales could bring onboard between $800 million and $1.2 billion in the quarter.
Shell’s positive update follows that of American supermajor ExxonMobil XOM, which indicated that the escalating margins in fuel and crude sales could contribute record profits to its second-quarter 2022 earnings. XOM expects its upstream business to generate a maximum of $3.3 billion in additional earnings in the second quarter sequentially. ExxonMobil expects operating profits from oil and gas operations of up to $11 billion, the highest for any quarter since 2017.
The company believes that high oil and gas prices will boost the earnings of its production business. XOM expects second-quarter operating results of the oil and liquid businesses to reflect an improvement of $1-$1.4 billion from the March-end quarter of 2022. The improvement in natural gas prices is likely to have contributed $1.5-$1.9 billion to the upstream business’ profits of ExxonMobil.
Coming back to Shell, the European energy major added that persistently high oil and natural gas prices boosted the value of its energy holdings. In that context, Shell will be able to reverse $3.5-4.5 billion in impairment charges that it took during the pandemic when coronavirus and associated demand deceleration wiped billions off the oil and natural gas asset value.
At the same time, the company’s exit from Russia will cost it some $300 million to $350 million on its quarterly earnings.
Now, let’s dig into some other segment-wise selected items from Thursday’s release.
Upstream
According to the latest update, Shell’s upstream production fell by 16% on a year-over-year basis in the second quarter of 2022 at the midpoint of the guidance. The supermajor is estimating its output in the range of 1,850-1,950 MBOE/d compared to 2,262 MBOE/d a year ago and 2,025 MBOE/d in the first quarter of 2022. Tax charges are expected to hurt earnings in the range of $2.8-3.4 billion.
Integrated Gas
Shell’s LNG liquefaction volumes are expected in the range of 7.4-8 million tons (following the removal of volumes associated with the Sakhalin facility in Russia), which translates into an improvement of around 2.8% year over year but a decrease of 3.8% sequentially. Shell’s integrated gas production is expected to increase to the range of 930,000-980,000 barrels of oil equivalent per day (BOE/d), or 955,000 BOE/d at the midpoint. It was 938,000 BOE/d in the second quarter of 2021 and 896,000 BOE/d in the March quarter.
Marketing
The midpoint of management’s marketing sales volume guidance equates to 2.5 million barrels per day, higher than the 2.372 achieved in the first quarter of 2022. Overall, segment profits are expected to be above first-quarter levels but in line with those achieved a year ago.
Chemicals & Products
Chemical sales may be in the range of 3 to 3.4 million tons but the company fears that inflation is expected to bring down margins from their first-quarter levels. However, refining profitability should be quite strong in the second quarter, with margins surging 174% sequentially due to global capacity shortage. The increase would boost earnings by $1 billion at the midpoint of SHEL’s estimates. Refinery and Chemicals utilization is projected within the ranges provided during the March quarter announcement. Finally, Shell sees robust earnings from oil and refined products trading in the second quarter though it will fail to match the first-quarter numbers.
Renewables and Energy Solutions
Adjusted earnings at this segment are expected in the range of $400-$900 million, reflecting a favorable market environment that would have buoyed trading and optimisation margins for gas and power.
Q2 Estimates
The Zacks Rank #1 (Strong Buy) company, which consolidated its dual headquarters in London over The Hague and became a single United Kingdom (“UK”) entity earlier this year, is slated to release second-quarter 2022 results on Jul 28. The current Zacks Consensus Estimate for Shell’s to-be-reported quarter is a profit of $2.86 per share.
Other Energy Picks
Apart from Shell, investors interested in the energy sector might look at Cheniere Energy LNG and Valero Energy VLO. Each of the companies sports a Zacks Rank of 1.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Cheniere Energy: Cheniere Energy is valued at some $31.6 billion. The Zacks Consensus Estimate for LNG’s 2022 earnings has been revised 39.9% upward over the past 90 days.
Cheniere Energy, headquartered in Houston, TX, delivered a 120.1% beat in Q1. LNG shares have gained around 49.9% in a year.
Valero Energy: VLO beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 84.3%, on average.
Valero Energy is valued at around $41.5 billion. VLO has seen its shares gain around 47.1% 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
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Valero Energy Corporation (VLO) : Free Stock Analysis Report
Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report
Shell PLC Unsponsored ADR (SHEL) : Free Stock Analysis Report
To read this article on Zacks.com click here.
