Shell share price drops on $4.5bn impairment charge for Q4 

Shell shares were down in Monday trading after the UK-based oil giant revealed that its fourth-quarter earnings took a hit of between $2.5 billion to $4.5 billion in impairments. 

On Monday, Shell said the impairments were primarily driven by macro developments and portfolio choices, including assets in Singapore's chemicals and products sector that the company has been actively seeking to sell. 

The FTSE 100 leader in market capitalization also disclosed an expected impact on its cash flow from operations, citing a $900 million charge related to the timing of emissions payments. 

Markets.com Chief Market Analyst Neil Wilson mentioned the downslide for Shell shares in his daily summary on Monday. The analyst noted that Shell, a key component of the FTSE 100 index, dragged the UK benchmark down: 

“Slackish start to trade for European equities on Monday with the major indices floating around in the brackish water around the flatline. The FTSE 100 dropped a third of a percent and drifted towards the bottom of the January channel with heavyweight Shell down 2%. The DAX traded a tad firmer, whilst the CAC in Paris was steady. US stocks broke a nine-week winning streak on Friday, though the S&P 500 closed marginally higher for the session”. 

Shell gas production: Impairment loss slightly offset by gas trading gains 

For the fourth quarter, Shell anticipates reporting integrated gas production within the range of 880,000 to 920,000 barrels of oil equivalent (BOE) per day, aligning with the guided range of 870,000-930,000 BOE per day. This compares to the 900,000 BOE per day produced in Q3 last year. 

Liquefied natural gas (LNG) volumes in Q4 are projected at between 6.9 million and 7.3 million metric tons, compared to 6.9 million tons in the preceding quarter. The earlier expectation was in the range of 6.7 million to 7.3 million tons. 

While gains from integrated gas trading are predicted to be significantly higher compared to the previous quarter, the trading results from chemicals and crude oil refineries are forecasted to be significantly lower. The former segment is expected to incur an adjusted earnings loss, according to Shell. 

Despite declining oil and gas prices during the period, Shell foresees an increase in Q4 gas trading — a notable development, given the challenges posed by geopolitical uncertainty (such as Houthi attacks on tankers in the Red Sea) and concerns about supply and demand, leading to oil hitting a five-month low in early December. 

Upstream production — the extraction of crude oil and natural gas — is projected to meet the guided range of 1.75 million to 1.95 million BOE per day, landing at 1.83 million-1.93 million per day. In the third quarter, Shell reported 1.75 million BOE per day. 

Shell share price: AJ Bell analyst says Shell needs to show it can “deliver” in choppy market conditions 

In a note to clients on Monday, AJ Bell analyst Russ Mould wrote: 

“The usual teaser for Shell’s quarterly results did little to enthuse investors as Saudi Arabia’s decision to cut crude prices dampened sentiment towards the sector. If it wasn’t for the threat of disruption to supplies thanks to tensions in the Middle East, one might have expected crude prices to come under sustained pressure as inventories and production build and signs of demand weakness emerge. 

At least Shell can lean on its big integrated gas arm. Though news its performance improved in the fourth quarter – when many of the world’s big consumers of natural gas are facing seasonally cold temperatures – hardly feels like a big revelation. A weak performance for its chemicals division is compounded by the big writedown associated with a Singapore refining hub it is looking to sell”. 

Mould also stressed that the company must demonstrate its ability to perform well even when market conditions “aren’t so helpful”. 

Meanwhile, Morgan Stanley has adjusted its energy sector rating to “in-line”. 
 
The investment bank saw potential in a number of stocks, maintaining Overweight ratings for TotalEnergies and BP shares, which were offset by Underweight ratings for Equinor, Galp, and OMV.