01/09/2025
Shell has issued a stark warning about a significant drop in earnings fr...
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01/09/2025
Shell has issued a stark warning about a significant drop in earnings from its integrated gas division and reduced production guidance across its oil and gas segments. The announcement highlights the ongoing challenges facing the energy giant.
The company disclosed on Wednesday that fourth-quarter earnings from its integrated gas division are expected to decline sharply compared to the previous quarter. This drop is attributed to the expiration of hedging contracts. For context, the division had posted adjusted earnings of $2.87 billion in the third quarter.
In its trading update, ahead of its Jan. 30 earnings release, Shell revealed plans to book a noncash post-tax impairment of $1.5 billion to $3.0 billion due to macroeconomic and operational factors. This includes a charge of up to $1.2 billion within its renewables and energy solutions segment. Additionally, Shell anticipates a $1.3 billion hit to cash flow from operations due to emission-permit payments in Germany and the U.S., customarily settled in the fourth quarter.
ANALYSTS REACT TO WEAKNESS IN KEY DIVISIONS
Despite the negative trading update across Shell's oil, gas, and power businesses, analysts from RBC Capital Markets, Biraj Borkhataria, and Adnan Dhanani indicated that the broader outlook and shareholder returns for 2025 should remain unaffected. However, the analysts revised their fourth-quarter net income projections from $5.1 billion to $3.9 billion, citing the weaker-than-expected performance.
ADJUSTED PRODUCTION AND VOLUME FORECASTS
Shell also reduced its integrated gas production outlook for the fourth quarter to 880,000 and 920,000 oil-equivalent daily barrels, citing scheduled maintenance at a Qatar-based facility. This represents a decrease from the previous guidance of 900,000 to 960,000 daily barrels.
Liquefied natural gas (LNG) volumes are forecasted to range between 6.8 million and 7.2 million metric tons, down from the 7.5 million metric tons produced in the prior quarter.
For upstream production—covering crude oil and natural gas extraction—Shell expects output of 1.79 million to 1.89 million oil-equivalent barrels per day. This represents a narrower range than its earlier guidance of 1.75 million to 1.95 million barrels.
BROADER SECTOR IMPACTS
Analysts at Jefferies predict that weaker oil prices and refining margins will contribute to reduced earnings across the energy sector. However, they note that higher gas prices could offset some of the financial impact. Jefferies projects a 3% decline in fourth-quarter earnings for Shell and its European peers compared to the prior quarter.
CHEMICAL AND MARKETING DIVISIONS FEEL SEASONAL PRESSURE
In its chemicals and products division, Shell maintained its refining margin at $5.50 per barrel but warned of significantly lower earnings due to seasonal factors. Similarly, the marketing division is expected to report substantially reduced quarterly revenues, which are also attributed to seasonality.
Shell's update paints a challenging picture for the energy giant as it navigates fluctuating market conditions and operational hurdles. Despite the headwinds, analysts remain cautiously optimistic about Shell's long-term resilience.
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