Shell’s Fourth-Quarter Earnings Impacted by Impairments

By Christian Moess Laursen

Shell, the London-based energy giant, has reported that its fourth-quarter earnings were negatively affected by impairments totaling between $2.5 billion and $4.5 billion. However, the company also experienced a significant increase in gas trading, which helped offset some of the losses. Shell’s overall production volumes are on track to meet their targets.

The impairments were primarily caused by macro developments and portfolio choices, including Shell’s efforts to sell its Singapore chemicals and products assets. These impairments have been a key factor in the company’s financial success.

Shell also expects a $900 million charge on its cash flow from operations due to the purchase of emissions permits in Germany and the U.S. The number of permits necessary for Shell to buy is determined by the amount of fuel sold and the associated emissions. The company typically makes these payments in the fourth quarter.

Despite declining oil and gas prices during the period, gains from integrated gas trading are expected to be significantly higher compared to the previous quarter, although oil hit a five-month low in early December. This decrease in oil prices reflects concerns about supply and demand, despite support from geopolitical uncertainty.

Barclays analysts predict an 8% drop in earnings across the European integrated energy sector for the quarter, which can be attributed to lower oil prices and refining margins, as well as seasonally higher costs. These predictions were outlined in a research note.

Quarterly Result of Shell

The quarterly result of Shell is expected to be impacted by lower trading from chemicals and crude oil refineries, leading to an adjusted earnings loss.

Integrated Gas Production

Shell anticipates reporting integrated gas production in the range of 880,000 to 920,000 oil-equivalent barrels a day for the fourth quarter. This is consistent with its guided range of 870,000-930,000 BOE a day. In comparison, the production in the third quarter was 900,000 BOE a day.

Liquefied Natural Gas (LNG) Volumes

The fourth-quarter volumes of liquefied natural gas (LNG) are expected to be between 6.9 million and 7.3 million metric tons. This is slightly higher than the 6.9 million tons recorded in the previous quarter. Initially, Shell projected a range of 6.7 million-7.3 million tons.

Upstream Production

The extraction of crude oil and natural gas, known as upstream production, is expected to meet the guided range of 1.75 million-1.95 million BOE a day at 1.83 million-1.93 million a day for the fourth quarter. In the third quarter, Shell reported a production of 1.75 million BOE a day.

Retailing Oil and Other Products

The quarterly result from retailing oil and other products like lubricants is expected to be similar to the same quarter in the previous year. Shell projects sales volumes to be between 2.35 million and 2.75 million barrels a day, aligning with the guided range of 2.25 million-2.75 million barrels.

The company’s shares were down 2.1% at 2,516.50 pence as of 0904 GMT.

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