Shell PLC (LSE:SHEL, NYSE:SHEL) shares jumped over 2% after it said stronger trading and improved refining margins should support second-quarter performance, although production has been hit by disruption to output from Qatar following the war in the Middle East.
In a separate statement, it was revealed that the oil major had also struck a deal to sell its downstream business in South Africa to UAE’s ADNOC Distribution for an implied enterprise value of $1 billion. The deal includes 580 fuel stations, wholesale fuel, aviation and lubricants operations, with ADNOC planning to retain the Shell brand under a long-term licensing agreement.
Ahead of second-quarter results on 30 July, the FTSE 100 company said integrated gas production is expected to be 610,000-650,000 barrels of oil equivalent a day in the second quarter, down from 909,000 in the first quarter, reflecting the impact on Qatari volumes.
Liquid natural gas (LNG) liquefaction volumes are forecast at 7.4-7.8 million tonnes.
Despite lower production, Shell said trading and optimisation earnings in integrated gas are expected to be “significantly higher” than in the first quarter.
In chemicals and products, the indicative refining margin is expected to improve to about $20 a barrel from $17 a barrel in the first quarter, while the indicative chemicals margin is forecast to rise to about $240 a tonne from $139 a tonne.
However, Shell cautioned that realised refining and chemicals margins remain below those benchmark levels because of market dislocations.
Marketing adjusted earnings are expected to be in line with the first quarter, while upstream production is forecast at 1.75 million-1.85 million barrels of oil equivalent a day, broadly unchanged from the previous quarter’s 1.843 million.
The FTSE 100 company also expects a positive working capital movement of $1-6 billion in the quarter, compared with a $11.2 billion outflow in the first quarter, reflecting what it described as unprecedented volatility in commodity prices.
Shell shares climbed 2.3% to 2,978.5p in the first half hour of trading on Tuesday.
Analysts at Jefferies said the update was stronger than expected, pointing to higher integrated gas and upstream volumes than previous guidance, higher integrated gas trading earnings, improved marketing performance and a sharp reversal in working capital after the first quarter outflow.
They said the changes could lift second-quarter net income forecasts by more than 10% ahead of results at the end of the month.