Shell plc Form 6-K Summary: Q1 2024 Outlook Update
Business Context and Reporting Period
This Form 6-K, filed on April 5, 2024, provides an updated outlook for Shell plc's first quarter of 2024 (Q1'24). The filing details management's current expectations for operational volumes, margins, and financial performance across all business segments. Final audited results for the period are scheduled for publication on May 2, 2024. All outlook figures exclude identified items unless otherwise noted.
Key Financial Metrics and Operational Outlook
The filing provides segment-specific guidance for Q1'24, with figures in billions of USD unless stated otherwise:
- Integrated Gas: Production expected at 960-1,000 kboe/d; LNG liquefaction volumes at 7.2-7.6 MT. Underlying opex is forecast at $1.0-$1.2 billion.
- Upstream: Production expected at 1,820-1,920 kboe/d. Underlying opex is forecast at $2.3-$2.8 billion. Exploration well write-offs are expected to be approximately $0.6 billion, primarily in Albania.
- Marketing: Sales volumes expected at 2,150-2,550 kb/d. Underlying opex is forecast at $2.0-$2.4 billion. Results are expected to be in line with Q4'23.
- Chemicals & Products: Indicative refining margin is $12/bbl; indicative chemicals margin is $151/tonne. Refinery utilization is expected at 89%-93%, and chemicals utilization at 71%-75%.
- Renewables and Energy Solutions: Adjusted earnings expected between $(0.1) and $0.5 billion. Chemicals sub-segment losses are expected to be lower than in Q4'23.
- Corporate: Adjusted earnings expected between $(0.6) and $(0.4) billion.
- Shell Group Cash Flow: Tax paid is expected to be $2.3-$3.1 billion. Derivative movements are estimated between $(1) and $3 billion, and working capital movements between $(3) and $(1) billion.
Material Changes Versus Prior Period
Comparisons with Q4'23 and previous Q1'24 outlooks indicate the following shifts:
- Margins: Indicative refining margins are expected to improve from $10/bbl in Q4'23 to $12/bbl in Q1'24. Chemicals margins are expected to rise from $125/tonne to $151/tonne.
- Production Volumes: Integrated Gas production outlook has been revised upward from a previous range of 930-990 kboe/d to 960-1,000 kboe/d. Upstream production outlook was revised upward from 1,730-1,930 kboe/d to 1,820-1,920 kboe/d.
- Utilization: Refinery utilization is expected to increase significantly from 81% in Q4'23 to a range of 89%-93%. Chemicals utilization is expected to rise from 62% to 71%-75%.
- Taxation: The Q4'23 taxation charge included favorable deferred tax movements that are not expected to recur in Q1'24, resulting in a higher expected tax charge for the Upstream segment ($2.1-$2.9 billion).
- Trading: Trading and optimization results in Integrated Gas are expected to be strong but significantly lower than the exceptional results seen in Q4'23. Conversely, Trading and Optimization in Chemicals & Products is expected to be significantly higher than Q4'23.
Guidance, Risks, and Unusual Items
Management commentary highlights several specific considerations and risks:
- Unusual Items: Approximately $0.6 billion in exploration well write-offs are anticipated in Q1'24, mainly attributed to operations in Albania. Joint venture and associate share of profit/loss is expected to be approximately $0.5 billion.
- Uncertainty: Derivative movements and working capital estimations are noted to have a broad range of uncertainty due to market volatility.
- Forward-Looking Risks: The filing lists standard risks including crude oil and natural gas price fluctuations, demand changes, currency fluctuations, geopolitical risks (including the Russia-Ukraine war), regulatory developments regarding climate change, and cybersecurity threats.
- Net Zero Targets: Shell notes that while operating plans reflect Scope 1, 2, and Net Carbon Intensity targets over the next ten years, the 2050 net-zero target is currently outside the planning period and carries significant risk if societal progress does not align.
Investor Verification Checklist
- Verify the final Q1'24 results upon publication on May 2, 2024, to confirm if the outlook ranges for production and margins were met.
- Monitor the impact of the $0.6 billion exploration write-off in Albania on the Upstream segment's adjusted earnings.
- Track the realization of the improved refining margin ($12/bbl) and chemicals margin ($151/tonne) against actual market conditions.
- Review the final Cash Flow from Operating Activities (CFFO) to assess the actual impact of derivative movements and working capital, which have wide forecast ranges.
- Confirm the recurrence of the favorable deferred tax movements in future quarters, as the Q4'23 benefit is explicitly stated as non-recurring.