Shell Provides Q2 Guidance: Warns of Up to $2B Hit

Shell plc SHEL expects a $2 billion impairment in the second quarter of 2024 after pausing its Rotterdam biofuels facility and divesting its Singapore refinery. Rotterdam's construction halt leads to a $600 million to $1 billion non-cash charge, while Singapore sees $600 million to $800 million in charges.

Now, let's dig into some other segment-wise selected items from the London-based supermajor's release on Friday.

Upstream

According to the latest update, Shell's upstream production fell 5.4% on a sequential basis in the second quarter of 2024 at the midpoint of the guidance. The supermajor is estimating its output in the range of 1,720-1,820 (thousand barrels of oil equivalent per day) MBOE/d compared to 1,872 MBOE/d in the first quarter of 2024. Tax charges are expected to hurt earnings in the range of $1.8-$2.6 billion.

Meanwhile, Shell expects the share of profit of joint ventures and associates to be around $200 million. 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 $2.4 billion.

Integrated Gas

Shell's LNG liquefaction volumes are expected in the range of 6.8-7.2 million tons, translating into a decrease of around 7.7% sequentialy. Shell's integrated gas production is expected in the range of 940,000-9800,000 barrels of oil equivalent per day (BOE/d) or 960,000 BOE/d at the midpoint. It was 992,000 BOE/d in the January-March period.

Per the company, second-quarter trading and optimization results in its integrated gas unit will be "in line" with the second quarter of 2023 but won't measure up to the previous quarter due to seasonality. Segment operating cost is expected between $1 billion and $1.2 billion.

Marketing

The midpoint of management's marketing sales volume guidance is 2.900 million barrels per day, higher than the 2.763 million barrels achieved in the first quarter of 2024. Overall, segment profits are expected to be in line with the quarter-ago levels, while operating expenses would be between $2.5 billion and $2.9 billion.

Chemicals & Products

The company expects a sequentially flat trajectory in its Trading & Optimisation results for the second quarter of 2024. As projected by Shell, the refining margin may have weakened in the same period, with the metric deteriorating 34.6% sequentially. But with chemical margins moving up 3%, realized chemicals sub-segment numbers are expected to be better than in the first quarter. Shell also forecast refinery utilization of 91-95%, operating expense of $1.9-$2.3 billion and chemicals manufacturing plant utilization of 78-82%.

Renewables and Energy Solutions

The adjusted bottom line of this segment is expected to hover between a loss of $500 million and a profit of $100 million.

Q2 Estimates

The company is slated to release second-quarter 2024 results on Aug 1. The current Zacks Consensus Estimate for Shell's to-be-reported quarter is a profit of $1.96 per share on revenues of $88.7 billion.

Zacks Rank & Stock Picks

Shell carries a Zacks Rank #3 (Hold) at present. Meanwhile, investors interested in the energy sector might consider operators like SM Energy Company SM, Sunoco LP SUN and Tullow Oil TUWOY. Sunoco currently sports a Zacks Rank #1 (Strong Buy), while SM Energy and Tullow carry a Zacks Rank #2 (Buy) each.

SM Energy Company: SM beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. SM Energy has a trailing four-quarter earnings surprise of 13.8% on average.

SM is valued at around $5 billion. SM Energy has seen its shares increase 47% in a year.

Sunoco LP: The Zacks Consensus Estimate for 2024 earnings of Sunoco indicates 99.7% growth.

SUN is valued at around $5.6 billion. Sunoco has seen its stock rise 36.3% in a year.

Tullow Oil: TUWOY is valued at some $573.7 million. Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has increased 20%.

Tullow Oil enjoys a Value, Growth and Momentum Score of A, B and B, respectively, each helping it round out with a VGM Score of A. TUWOY shares have gained 24.4% in a year.

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