Shell flags profit hit from weakness in gas trading and chemicals business
- Narrows guidance on second-quarter LNG and gas output
- Unplanned U.S. maintenance weighs on chemicals business
- Shares underperform wider European energy index
Shell expects quarterly earnings to be hit by weaker trading in its integrated gas division and losses at its chemicals and products operations, it said on Monday ahead of second-quarter results due on July 31.
The energy group's chemicals business suffered unplanned maintenance at its Monaca polymer plant in the United States while trading in its chemicals and products business was significantly lower than in the first quarter, it said.
Shell shares were down 2.9% at 25.52 pounds by 1133 GMT, against a 1.3% decline for the wider European energy sector.
RBC downgraded its forecast for Shell's second-quarter net income to $3.6 B from $4.8 B after the trading update while Citi analysts cut theirs to $4.1 B from $6.3 B.
Shell has previously said it wanted to explore strategic and partnership opportunities for its chemicals assets in the United States and might close some chemicals businesses in Europe.
A weaker trading performance was probably to be expected, but the trading update points to a significantly worse than expected downstream performance, said RBC analyst Biraj Borkhataria.
In its oil-focused upstream division, Shell raised the lower end of its guided output, projecting 1.66 MMboed (bbl of oil equivalent per day) to 1.76 MMboed, up from the previously forecast 1.56 MMboed to 1.76 MMboed.
The business is expected to record a $200-MM exploration write-off, it said without providing further detail.
For its integrated gas division, Shell gave production guidance of 900,000 boed to 940,000 boed, compared with the company's previous projection of 890,000 boed to 950,000 boed.
LNG production by the world's biggest LNG trader is set to come in at 6.4 MM tonnes (t) to 6.8 MMt in the second quarter, it said, compared with a previous range of 6.3 MMt to 6.9 MMt.
A Shell spokesperson declined to comment when asked for further detail.
While trading results in its integrated gas division are expected to be significantly lower than in the first quarter, Shell is targeting a 4%–5% annual increase in LNG sales over the next five years and 1% annual production growth.
Adjusted earnings at its marketing division, meanwhile, are set to rise from the first quarter on sales volumes of 2.6 MMbpd to 3 MMbpd, slightly below previous guidance of 2.6 MMbpd to 3.1 MMbpd.
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