- Second quarter gas trading to be significantly lower
- Strong first quarter and seasonal effects to blame
- Contribution expected to be in line with 2021 and 2022
Europe’s largest oil and gas company Shell (SHEL) said it expected to see ‘significant lower’ trading in its gas division for the second quarter ended 30 June.
The energy giant pinned the weakness on a strong first quarter, ‘fewer optimisation’ opportunities and seasonal effects. The contribution in the second quarter is expected to be in line with the average contributions made in 2021/22.
In addition, Shell expects to make a $3 billion impairment charge driven by a 1% increase in the discount rate used for impairment testing.
Investors seemed to shake-off the soft guidance with the shares unchanged at £22.63, leaving them around 3% lower year to date but up a tenth over the last year.
Shell has come under fire for ploughing ahead with investments into fossil fuels while touting its green credentials, but the company argues it is necessary to plug the gap while renewables catch-up.
CEO Wael Sawan told BBC news that reducing global oil and gas production would be ‘dangerous and irresponsible’ as it would push energy prices up.
EXPERT VIEW
Russ Mould, investment director at AJ Bell, commented: ‘How much the drop in earnings from its natural gas trading operation is a function of what Shell describes as ‘seasonality’ in the market, and how much it is just cyclical weakness linked to a softening economy is an open question.
‘The company also expects the numbers to be marred by field maintenance which will limit production. Even considering a record first quarter of the year Shell has fallen behind its US peers and there is a danger a weak showing could undermine it further.
‘Chief executive Wael Sawan, who began his tenure at the start of 2023, has a plan to boost Shell’s valuation and play catch-up with its American rivals by trimming operating costs and limiting spending to areas where he is confident big returns can be made.
‘Sawan has also signalled he is open to moving Shell’s listing to the US, something which would be yet another blow to the prestige of the UK market.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (James Crux) own shares in AJ Bell.
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