ii view: good news for Shell's gas trading business

Third-quarter trading update to 30 September

ii round-up:

Energy giant Shell (LSE:SHEL) today pointed to a pick-up in quarterly gas trading compared to the prior second quarter and comes ahead of third-quarter results scheduled for 2 November. 

The improved performance came despite the oil major flagging lower-than-expected gas production given scheduled maintenance at operations including its Prelude Australian and Caribbean fields. 

Shares in the FTSE 100 giant rose 1% in UK trading having come into this latest news up by almost 10% year-to-date. They're now within striking distance of a record high. Rival BP (LSE:BP.) is up 5% in 2023 so far, while the UK’s biggest renewable energy generator SSE (LSE:SSE) is down 9%. The FTSE 100 index itself is up marginally this year.

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Earnings at Shell’s chemical business are expected to prove similar to those made during the prior second quarter, with third-quarter upstream oil production also coming in at similar levels to Q2. 

Shell management is due to meet staff later this month amid concerns regarding chief executive Wael Sawan’s dialling back of low-carbon energy investments earlier year.

Third-quarter earnings for its renewables and energy solutions business are expected to come in anywhere between a loss of $0.3 billion and a profit of $0.3 billion compared to an adjusted profit of $0.2 billion in the second quarter.  

ii view:

Started in 1907, the company last year shortened its name from Royal Dutch Shell to just Shell, moving its headquarters from the Netherlands to the UK. Alongside its upstream exploration and production business, its downstream operations serve around 32 million retail customers a day at 46,000 service stations. Employing over 90,000 people across more than 70 countries, it competes against global rivals including Exxon Mobil Corp (NYSE:XOM), Chevron Corp (NYSE:CVX) and TotalEnergies SE (EURONEXT:TTE). 

For investors, heightened interest rates and ongoing global economic uncertainty continue to cast a shadow over expected future energy demand. Geopolitical factors including Saudi Arabia’s warming relationship with Russia cannot be ignored, costs generally for businesses are now elevated, while tackling climate change remains a required need for both the industry and governments alike.  

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More favourably, its diversity of operations across oil, gas, chemicals, and alternatives regularly allows one area of strength to counter another of weakness. Heightened energy prices following the war in Ukraine have pushed group cashflow higher, allowing Shell to reduce debt and raise shareholder returns following a cut during the pandemic, while there are hopes that interest rates may be near a peak.

In all, with the shares on a forecast dividend yield of over 4% and the consensus analyst estimate of fair value at over £30 per share, Shell looks to remain worthy of its place in diversified investor portfolios. 

Positives: 

• Diversity of operations
• A focus on shareholder returns

Negatives:

• Uncertain economic outlook
• The weather can raise operational challenges

The average rating of stock market analysts:

Buy