ii view: will Shell manage significant cost savings in 2025?

Fourth-quarter trading update to 31 December

• Expects integrated gas production of between 880,000 and 920,000 barrels of oil equivalent per day, down from 941,000 in Q3
• Expects LNG liquefaction volumes of 6.8 million to 7.2 million metric tons, down from 7.5 million in Q3
• Expects renewables division to report an adjusted earnings loss of up to $600 million

ii round-up:

Energy giant Shell (LSE:SHEL) operates across several divisions including integrated gas, chemicals and products and renewables and energy solutions.

Alongside its upstream exploration and production business, its downstream operations serve around 33 million retail customers a day at 47,000 service stations. Its electric vehicle (EV) charge points total around 54,000. 

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In 2022, it shortened its name from Royal Dutch Shell to just Shell, moving its headquarters from the Netherlands to the UK. 

For a round-up of this latest trading update announced on 8 January, please click here. 

ii view:

Started in 1907, Shell today employs around 103,000 people across 70 countries. The FTSE 100 company claims to be the world’s largest mobility retailer by number of sites. The company sold 67 million tonnes of liquefied natural gas (LNG) in 2023 and produced 2,791 thousand barrels of oil and gas equivalent per day during 2023. Environment achievements include reducing the group’s own carbon emissions by close to a third between 2016 and 2023. 

For investors, the tough economic backdrop, particularly for China, continues to offer uncertainty regarding future energy demand. China remains the world's biggest oil importer. Geopolitical tensions and the speed with which the West’s relationship with Russia changed should not be forgotten. Windfall taxes introduced in reaction to higher energy prices and the war in Ukraine persist, while Shell’s own dialling back of investments in climate friendly operations does not sit comfortably with all investors.  

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To the upside, Shell’s diversity of operations across oil, gas, chemicals and retailing regularly allows one area of strength to counter another of weakness. The group remains on track to meet a $2-3 billion cost savings target by the end of 2025, with hope in the City that a target of $6 billion could eventually be implemented. Significant cashflows provide financial flexibility, allowing net debt, swollen during the pandemic, to be reduced and share buybacks to persist. China is also continuing to execute measures to support its economy, thereby aiding oil demand. 

In all, and while risks remain, a forecast dividend yield of over 4% and a consensus analyst estimate of fair value at close to £33 per share look to offer grounds for further optimism.  

Positives: 

• Diversity of operations
• Reducing net debt

Negatives:

• Uncertain economic outlook
• The weather can raise operational challenges

The average rating of stock market analysts:

Strong buy