Business Context and Reporting Period
This Form 6-K filing by Shell plc, dated July 7, 2023, provides an update to the second quarter (Q2) 2023 outlook. The document outlines management's current expectations for Q2 2023 performance across key business segments. Final Q2 2023 results are scheduled for publication on July 27, 2023. All outlook statements exclude identified items unless otherwise indicated.
Key Financial Metrics and Segment Outlook
The filing provides segment-level guidance for Q2 2023 compared to Q1 2023 actuals. Key metrics include:
- Integrated Gas: Adjusted EBITDA production expected at 950-990 kboe/d (down from 970 kboe/d in Q1). LNG liquefaction volumes forecast at 6.9-7.3 MT. Trading & Optimisation expected to be significantly lower than Q1 due to seasonality.
- Upstream: Production expected at 1,650-1,750 kboe/d (down from 1,877 kboe/d in Q1) due to scheduled maintenance in the Gulf of Mexico, Norway, Malaysia, and Brazil. Exploration well write-offs expected to be approximately $0.2 billion.
- Marketing: Sales volumes forecast at 2,400-2,800 kb/d. Results expected to be in line with Q1 2023.
- Chemicals & Products: Indicative refining margin expected to drop to $9/bbl from $15/bbl in Q1. Chemicals margin expected at $150/tonne. The chemicals sub-segment is expected to report a loss for Q2 2023. Refinery utilisation forecast at 85-89%.
- Renewables and Energy Solutions: Adjusted Earnings expected to range from $(0.3) billion to $0.3 billion, compared to $0.4 billion in Q1.
- Corporate: Adjusted Earnings expected to range from $(0.8) billion to $(0.6) billion.
- Shell Group Cash Flow: Cash Flow From Operations (CFFO) tax paid expected at $3.7-4.5 billion. Working capital expected to be a source of $2-6 billion.
Material Changes and Unusual Items
Several material changes and specific items are highlighted for Q2 2023:
- Impairments: Post-tax impairments of up to $3 billion are expected, primarily driven by a 1% increase in the discount rate used for impairment testing. These are reported as identified items and have no cash impact.
- Production Declines: Both Integrated Gas and Upstream production are expected to decrease quarter-over-quarter due to seasonality and scheduled maintenance.
- Margin Compression: Refining margins are expected to decline significantly from Q1 levels.
- Joint Ventures: The share of profit/loss of joint ventures and associates in Upstream is expected to be around zero.
Guidance, Risks, and Management Commentary
Management notes that outlooks may vary from actual results. The filing includes standard forward-looking statement disclaimers regarding risks such as price fluctuations in crude oil and natural gas, demand changes, currency fluctuations, and regulatory developments. Consensus collections for quarterly Adjusted Earnings and Adjusted EBITDA are expected to be published on July 20, 2023. The filing emphasizes that working capital estimations inherently have a broad range of uncertainty.
Investor Verification Checklist
- Verify the final Q2 2023 results against the $3 billion impairment guidance when published on July 27, 2023.
- Monitor the actual impact of the 1% discount rate increase on asset valuations.
- Confirm the extent of production shortfalls in Upstream and Integrated Gas due to scheduled maintenance.
- Review the final chemicals sub-segment loss and refining margin performance against the $9/bbl guidance.
- Check the consensus estimates published by Vara Research on July 20, 2023, for comparison with Shell's outlook.