By Ejekwu Chidiebere
Hear the Chief Executive Officer of Shell, Wael Sawan express his delight as he sets his eyes on the company’s performance and financial scorecard within the Q2-plus 2024 operational window. He was quoted to have said: “Shell delivered another strong quarter of operational and financial results. We further strengthened our leading LNG portfolio, and made good progress across our Capital Markets Day 2023 financial targets, including $1.7 billion of structural cost reductions since 2022. Today, we have also announced a further $3.5 billion buyback programme for the next three months. We continue to demonstrate that we are delivering more value with less emissions.”
Report according to an email to Energy Window International of August 1 2024 showed that within the period under consideration, Shell posted income attributable to its shareholders which when compared with the first quarter 2024 reflected lower LNG trading and optimization margins, lower refining margins, lower margins from crude and oil products trading and optimization, and lower Integrated Gas and Upstream volumes and offset, partly, by higher Marketing margins and volumes.
The income attributable included net impairment charges and reversals, and reclassifications from equity to profit and loss of cumulative currency translation differences related to funding structures, items which were included in the identified items, amounting to a net loss of $2.7 billion in the quarter, which also compares with the identified items in the first quarter 2024, amounting to a net loss of $0.6 billion.
Adjusted Earnings and Adjusted EBITDA2 (Earnings before interest, taxes, depreciation and amortization) were driven by the same factors as income attributable to Shell plc shareholders and adjusted for the above identified items and the cost of supplies adjustment of positive $0.1 billion.
Cash flow from operating activities for the quarter under review was $13.5 billion, and primarily driven by Adjusted EBITDA, and derivatives inflow, partly offset by tax payments of $3.4 billion, and working capital outflow of $0.3 billion, while cash flow from investing activities for the same quarter recorded an outflow of $3.3 billion, and included cash capital expenditure of $4.7 billion, and divestment proceeds of $0.8 billion.
Net debt and Gearing: At the end of the second quarter of 2024, net debt was recorded as $38.3 billion, compared with $40.5 billion at the end of the first quarter 2024, mainly reflecting free cash flow, partly offset by share buybacks, cash dividends paid to company’s shareholders, interest payments, and lease additions. Gearing was 17.0% at the end of the second quarter 2024, compared with 17.7% at the end of the first quarter 2024, mainly driven by lower net debt.
Total shareholder distributions in the quarter amounted to $6.1 billion. It comprised repurchases of shares of $4.0 billion and cash dividends paid to shareholders amounting $2.2 billion. Dividends declared to shareholders for the second quarter 2024 amount to $0.3440 per share. Shell has also completed $3.5 billion of share buybacks announced in the first quarter 2024 results declaration. The company equally announced a share buyback programme of $3.5 billion, expected to be completed by the third quarter 2024 results announcement.
Half year 2024 income attributable to the company’s shareholders, compared with the first half 2023, was reported to reflect lower LNG trading and optimization margins, lower realized LNG and gas prices, lower trading and optimization margins of power and pipeline gas, and lower refining margins, partly offset by lower operating expenses, higher Chemicals margins, and higher Integrated Gas and Upstream volumes.
By focusing the portfolio and simplifying the organization, $1.7 billion of pre-tax structural cost reductions were delivered up to the second quarter 2024 compared with 2022 levels, with $0.7 billion in the first half 2024.
First half 2024 income attributable to shareholders also included net impairment charges and reversals of $1.9 billion, reclassifications of $1.1 billion from equity to profit and loss of cumulative currency translation differences related to funding structures, and unfavourable movements of $0.6 billion due to the fair value accounting of commodity derivatives.
These charges, reclassifications and unfavourable movements the report showed were included in identified items amounting to a net loss of $3.3 billion, that which also compares with identified items in the first half 2023 which amounted to a net loss of $2.1 billion.
Adjusted Earnings and Adjusted EBITDA2 for the first half 2024 were driven by the same factors as income attributable to Shell plc shareholders and adjusted for identified items and the cost of supplies adjustment of negative $0.2 billion.
Cash flow from operating activities for the first half 2024 was $26.8 billion, and primarily driven by Adjusted EBITDA, and derivatives inflow of $1.0 billion, partly offset by tax payments of $6.1 billion, and working capital outflow of $3.0 billion.
Cash flow from investing activities for the first half 2024 was an outflow of $6.9 billion and included cash capital expenditure of $9.2 billion, net other investing cash outflows of $0.7 billion, divestment proceeds of $1.8 billion, and interest received of $1.2 billion.
Second Quarter 2024 Portfolio Developments (Integrated Gas)
Shell Plc reports that in June 2024, the firm reached an agreement with Carne Investments Pte. Ltd., an indirect wholly owned subsidiary of Temasek, to acquire 100% of the shares in Pavilion Energy Pte. Ltd. Pavilion Energy they said, includes a global LNG trading business with a contracted supply volume comprising about 6.5 million tonnes per annum (mtpa).
In July 2024, it (Shell Plc) announced its final investment decision (FID) on the Manatee project, described as an undeveloped gas field in the East Coast Marine Area (ECMA) in Trinidad and Tobago.
In July 2024 also, the company said it signed an agreement to invest in the Abu Dhabi National Oil Company’s (ADNOC) Ruwais LNG project in Abu Dhabi through a 10% participating interest. The Ruwais LNG project will consist of two 4.8 mtpa LNG liquefaction trains with a total capacity of 9.6 mtpa.
On the upstream sector, Shell Plc reports that last May, the Atapu consortium announced the FID for the Atapu-2 project, regarded as the second floating production, storage and offloading (FPSO) vessel to be deployed at the Atapu field, within the offshore Santos basin in Brazil. The Atapu consortium which includes Petrobras (65.7% – Operator), Shell (16.7%), TotalEnergies (15%), Petrogal Brasil (1.7%) and PPSA (0.9%).
Equally in the month of July, the operator of the Jerun field in Malaysia, SapuraOMV Upstream Sdn Bhd announced that first gas had been achieved. Jerun is operated by SapuraOMV Upstream (40%) in partnership with Sarawak Shell Berhad (30%) and PETRONAS Carigali Sdn Bhd (30%))
On marketing the report showed that in July 2024, Shell Plc announced that it was temporarily pausing on-site construction work at its 820,000 tonnes a year biofuels facility at the Shell Energy and Chemicals Park Rotterdam in the Netherlands to address project delivery and ensure future competitiveness given current market conditions.
About chemicals and products, Shell Plc said in its report that last May it reached an agreement to sell its Energy and Chemicals Park in Singapore to CAPGC Pte. Ltd., a joint venture company between Chandra Asri Capital Pte. Ltd. and Glencore Asian Holdings Pte. Ltd, a transaction under which it is expected that all of Shell’s interest in Shell Energy and Chemicals Park Singapore would be transferred to CAPGC.
In June 2024, Shell Plc announced the FID for Polaris, a carbon capture project at the Shell Energy and Chemicals Park, Scotford in Alberta, Canada. Polaris is designed to capture approximately 650,000 tonnes of CO2 annually from the Shell-owned Scotford refinery and chemicals complex.
Integrated Gas includes liquefied natural gas (LNG), conversion of natural gas into gas-to-liquids (GTL) fuels and other products. Others include natural gas and liquids exploration and extraction, and the operation of the upstream and midstream infrastructure necessary to deliver these to market. Integrated Gas also includes the marketing, trading and optimization of LNG.
Segment earnings, compared with the first quarter 2024, reflected the combined effect of lower contributions from trading and optimization due to seasonality and realized prices (decrease of $531 million), lower volumes (decrease of $209 million), and unfavourable deferred tax movements ($149 million).
Second quarter 2024 segment earnings also include a charge of $122 million due to unrecoverable indirect tax receivables, and unfavourable movements of $98 million relating to an accounting mismatch due to fair value accounting of commodity derivatives. As part of Shell’s normal business, commodity derivative hedge contracts are entered into for mitigation of economic exposures on future purchases, sales and inventory. These charges and unfavourable movements are part of identified items and compare with the first quarter 2024 which does not exclude unfavourable movements of $887 million due to the fair value accounting of commodity derivatives.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings adjusted for identified items.
Cash flow from operating activities for the quarter was primarily driven by Adjusted EBITDA and working capital inflows of $324 million, partly offset by tax payments of $1,039 million.
Total oil and gas production, compared with the first quarter 2024 decreased by 1% due mainly to higher maintenance, partly offset by production-sharing contract effects, while LNG liquefaction volumes decreased by 8% due mainly to higher maintenance.
Segment earnings, compared with the first half 2023, reflected the combined effect of lower contributions from trading and optimization and lower realized prices (decrease of $1,609 million), partly offset by higher volumes (increase of $230 million), lower operating expenses (decrease of $181 million), and favourable deferred tax movements ($148 million).
Report also shows first half of 2024 segment earnings to include unfavourable movements of $985 million relating to an accounting mismatch due to fair value accounting of commodity derivatives. It adds that as part of Shell’s normal business, commodity derivative hedge contracts are entered into for mitigation of economic exposures on future purchases, sales and inventory. It further shows that these unfavourable movements were part of identified items and compare with the first half 2023 which include unfavourable movements of $2,481 million due to the fair value accounting of commodity derivatives, and net impairment charges and reversals of $1,700 million.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items.
Cash flow from operating activities for the first half 2024 was primarily driven by Adjusted EBITDA, and a working capital inflow of $599 million, partly offset by tax payments of $1,506 million and net cash outflows related to derivatives of $1,213 million.
Total oil and gas production, compared with the first half 2023, increased by 1% due mainly to ramp-up of fields in Oman and Australia, partly offset by higher maintenance. LNG liquefaction volumes increased by 1% mainly due to lower unplanned maintenance in Australia.
It reports the upstream segment to include exploration and extraction of crude oil, natural gas and natural gas liquids, marketing and transporting oil and gas while operating the infrastructure necessary to deliver them to the market.
Still on quarter one segment, report highlights segment earnings, compared with the first quarter 2024, to reflect lower well write-offs (decrease of $313 million), and lower operating expenses (decrease of $149 million), partly offset by lower volumes (decrease of $149 million). This includes the second quarter 2024 segment earnings consisting of a loss of $143 million related to the impact of the weakening.
Brazilian real on a deferred tax position, and a loss of $122 million related to a tax settlement in Brazil, partly offset by a gain of $139 million related to the impact of inflationary adjustments in Argentina on a deferred tax position. It reports that these losses and gains are part of identified items, as compares with the first quarter 2024 which includes a gain of $460 million related to the impact of inflationary adjustments in Argentina on a deferred tax position – partly offset by net impairment charges and reversals of $102 million.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items.
Cash flow from operating activities for the quarter was primarily driven by Adjusted EBITDA, partly offset by tax payments of $1,955 million.
Total production, compared with the first quarter 2024, decreased mainly due to higher scheduled maintenance, partly offset by new oil delivery.
Continuing with the half year analysis, the report highlights segment earnings, compared with the first half 2023, to reflect unfavourable movements in deferred tax positions of ($415 million), and higher well write-offs (increase of $366 million), partly offset by the net impact of higher realized oil and lower realized gas prices (increase of $197 million).
First half 2024 segment earnings also included gains of $599 million related to the impact of inflationary adjustments in Argentina on a deferred tax position, partly offset by a loss of $191 million related to the impact of the weakening Brazilian real on a deferred tax position and net impairment charges and reversals of $169 million. Gains and charges which are part of identified items, and compares with the first half 2023 which included charges of $176 million from impairments, and charges of $127 million relating to Brazil Oil export tax, partly offset by gains of $140 million related to the impact of the strengthening Brazilian real on a deferred tax position.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items.
Cash flow from operating activities for the first half 2024 was primarily driven by Adjusted EBITDA, partly offset by tax payments of $3,757 million.
Total production, compared with the first half 2023, increased due mainly to new oil delivery in Deep Water, partly offset by field decline.
The Marketing segment comprises the Mobility, Lubricants, and Sectors and Decarbonisation businesses, as mobility business operates Shell’s retail network including electric vehicle charging services and the wholesale commercial fuels business which provides fuels for transport, industry and heating. The Lubricants business produces, markets and sells lubricants for road transport, and machinery used in manufacturing, mining, power generation, agriculture and construction. The Sectors and Decarbonisation business sells fuels, speciality products and services including low-carbon energy solutions to a broad range of commercial customers including the aviation, marine, and agricultural sectors.
Segment earnings, compared with the first quarter 2024, reflected higher marketing margins (increase of $187 million) mainly driven by improved Mobility unit margins and seasonal impact of higher volumes and higher Sectors and Decarbonisation margins. Lubricants margins were in line with the first quarter 2024. Segment earnings also reflected favourable tax movements ($63 million).
Second quarter 2024 segment earnings also included impairment charges of $783 million mainly relating to an asset in the Netherlands, and charges of $50 million related to redundancy and restructuring. These charges are part of identified items.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items.
Cash flow from operating activities for the quarter was primarily driven by Adjusted EBITDA, working capital inflows of $153 million, and the timing impact of payments relating to emission certificates and biofuel programmes of $112 million. These inflows were partly offset by non-cash cost-of-sales adjustments of $74 million.
Marketing sales volumes (comprising hydrocarbon sales), compared with the first quarter 2024, increased mainly due to seasonality.
Segment earnings, compared with the first half 2023, reflected unfavourable tax movements ($181 million), and higher depreciation charges (increase of $101 million) mainly due to asset acquisitions. These were partly offset by higher marketing margins (increase of $203 million) including higher margins in Lubricants, Mobility and Sectors and Decarbonisation. Segment earnings also reflected lower operating expenses (decrease of $53 million).
First half 2024 segment earnings also included impairment charges of $786 million mainly relating to an asset in the Netherlands, charges of $65 million related to redundancy and restructuring, and net losses of $56 million related to the sale of assets, partly offset by favourable movements of $50 million relating to an accounting mismatch due to fair value accounting of commodity derivatives. It adds that as part of Shell’s normal business, commodity derivative hedge contracts are entered into for mitigation of economic exposures on future purchases, sales and inventory. These charges and favourable movements are part of identified items and compare with the first half 2023 which included gains of $298 million related to indirect tax credits, and favourable movements of $60 million due to the fair value accounting of commodity derivatives.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items.
Cash flow from operating activities for the first half 2024 was primarily driven by Adjusted EBITDA, the timing impact of payments relating to emission certificates and biofuel programmes of $539 million, and non-cash cost-of-sales adjustments of $79 million. These inflows were partly offset by working capital outflows of $639 million, and tax payments of $191 million.
Marketing sales volumes (comprising hydrocarbon sales), compared with the first half 2023, decreased mainly in Mobility including increased focus on value over volume.
The Chemicals and Products segment includes chemicals manufacturing plants with their own marketing network, and refineries which turn crude oil and other feedstocks into a range of oil products which are moved and marketed around the world for domestic, industrial and transport use. The segment also includes the pipeline business, trading and optimization of crude oil, oil products and petrochemicals, and Oil Sands activities (the extraction of bitumen from mined oil sands and its conversion into synthetic crude oil).
Segment earnings, compared with the first quarter 2024, reflected lower Products margins (decrease of $637 million) mainly driven by lower refining margins due to increased supply and lower margins from trading and optimization.
Segment earnings also reflected unfavourable tax movements ($92 million). These were partly offset by higher Chemicals margins (increase of $123 million) due to higher utilization and improved margin environment. In addition, the second quarter 2024 reflected lower operating expenses (decrease of $101 million).
Second quarter 2024 segment earnings also included net impairment charges and reversals of $708 million mainly relating to assets in Singapore, partly offset by favourable movements of $156 million relating to an accounting mismatch due to fair value accounting of commodity derivatives. As part of Shell’s normal business, commodity derivative hedge contracts are entered into for mitigation of economic exposures on future purchases, sales and inventory, underlining these charges and favourable movements as part of identified items, which compared with the first quarter 2024 included unfavourable movements of $319 million due to the fair value accounting of commodity derivatives and impairment charges of $152 million.
In the second quarter 2024, Chemicals had positive Adjusted Earnings of $50 million and Products had positive Adjusted Earnings of $1,035 million.
Cash flow from operating activities for the quarter was primarily driven by Adjusted EBITDA, the timing of payments relating to emissions and biofuel programmes of $417 million, and cash inflows relating to commodity derivatives of $304 million, inflows which were partly offset by working capital outflows of $361 million, tax payments of $186 million and noncash cost-of sales adjustments of $59 million.
Chemicals manufacturing plant utilization was 80% compared with 73% in the first quarter 2024, due to lower unplanned maintenance in North America.
Refinery utilization was 92% compared with 91% in the first quarter 2024.
Continuing, segment earnings, compared with the first half 2023, reflected higher Chemicals margins (increase of $439 million) due to higher utilization and improved margin environment. Segment earnings also reflected lower operating expenses (decrease of $473 million). These were partly offset by lower Products margins (decrease of $164 million) mainly driven by lower refining margins partly offset by higher margins from trading and optimization. Segment earnings also included unfavourable tax movements ($126 million).
First half 2024 segment earnings also included net impairment charges and reversals of $860 million mainly relating to assets in Singapore, and unfavourable movements of $163 million relating to an accounting mismatch due to fair value accounting of commodity derivatives. As part of Shell’s normal business, commodity derivative hedge contracts are entered into for mitigation of economic exposures on future purchases, sales and inventory. These charges are part of identified items, and compare with the first half 2023 which included net impairment charges and reversals of $148 million, partly offset by favourable movements of $135 million due to the fair value accounting of commodity derivatives.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items. In the first half 2024, Chemicals had negative Adjusted Earnings of $63 million and Products had positive.
Cash flow from operating activities for the first half 2024 was primarily driven by Adjusted EBITDA, the timing impact of payments relating to emission certificates and biofuel programmes of $232 million, non-cash cost-of-sales adjustments of $148 million, and dividends (net of profits) from joint ventures and associates of $102 million. These inflows were partly offset by working capital outflows of $3,000 million, tax payments of $205 million, cash outflows relating to legal provisions of $180 million, and commodity derivatives of $98 million.
Chemicals manufacturing plant utilization was 77% compared with 71% in the first half 2023, mainly due to higher economic optimization in the first half 2023. The increase was also driven by ramp-up of Shell Polymers Monaca and lower unplanned maintenance in the first half 2024.
Refinery utilization was 92% compared with 88% in the first half 2023, mainly due to lower planned and unplanned maintenance.
Renewables and Energy Solutions includes activities such as renewable power generation, the marketing and trading and optimization of power and pipeline gas, as well as carbon credits, and digitally enabled customer solutions. It also includes the production and marketing of hydrogen, development of commercial carbon capture and storage hubs, investment in nature-based projects that avoid or reduce carbon emissions, with Shell Ventures, which invests in companies that work to accelerate the energy and mobility transformation.
Also segment earnings, compared with the first quarter 2024, reflected lower margins (decrease of $200 million) mainly due to trading and optimization primarily in Europe as a result of lower seasonal demand and volatility as well as lower generation and energy marketing margins, and unfavourable tax movements ($94 million), partly offset by lower operating expenses (decrease of $52 million).
Second quarter 2024 segment earnings also included favourable movements of $223 million relating to an accounting mismatch due to fair value accounting of commodity derivatives, and impairment charges of $155 million. As part of Shell’s normal business, commodity derivative hedge contracts are entered into for mitigation of economic exposures on future purchases, sales and inventory. These favourable movements and charges are part of identified items and compare with the first quarter 2024 which included favourable movements of $306 million due to the fair value accounting of commodity derivatives.
Adjusted Earnings and Adjusted EBITDA2 were driven by the same factors as the segment earnings and adjusted for identified items.
Cash flow from operating activities for the quarter was primarily driven by net cash inflows related to derivatives of $607 million, and working capital inflows of $225 million, partly offset by tax payments of $138 million, and Adjusted EBITDA.
Segment earnings, compared with the first half 2023, reflected lower margins (decrease of $831 million) mainly from trading and optimization primarily in Europe due to lower volatility and declining prices, partly offset by lower operating expenses (decrease of $184 million).
First half 2024 segment earnings also included favourable movements of $529 million relating to an accounting mismatch due to fair value accounting of commodity derivatives, partly offset by net impairment charges and reversals of $78 million. These favourable movements and charges are part of identified items and compare with the first half 2023 which included favourable movements of $2,125 million due to the fair value accounting of commodity derivatives.
The Corporate segment covers the non-operating activities supporting Shell. It comprises Shell’s holdings and treasury organization, headquarters and central functions, self-insurance activities and centrally managed longer-term innovation portfolio. All finance expense, income and related taxes are included in Corporate segment earnings rather than in the earnings of business segments.
Segment earnings, compared with the first quarter 2024, reflected unfavourable tax movements and unfavourable movements in currency exchange rate effects.
Second quarter 2024 segment earnings also included reclassifications from equity to profit and loss of cumulative currency translation differences related to funding structures resulting in unfavourable movements of $1,122 million. These currency translation differences were previously recognized in other comprehensive income and accumulated in equity as part of accumulated other comprehensive income. This non-cash reclassification is part of identified items.
Adjusted EBITDA2 was mainly driven by unfavourable currency exchange rate effects and higher operating expenses.
Outlook for the Third Quarter 2024 shows that cash capital expenditure for full year 2024 is expected to be within $22 – $25 billion, with integrated gas production expected to be approximately 920 – 980 thousand boe/d. LNG liquefaction volumes are expected to hit approximately 6.8 – 7.4 million tonnes, with the outlook which also reflects scheduled maintenance across the portfolio.
Upstream production is expected to be approximately 1,580 – 1,780 thousand boe/d, production outlook would reflect the scheduled maintenance across the portfolio.
Marketing sales volumes are expected to hover around 2,700 – 3,200 thousand b/d, while refinery utilization is expected to be approximately 83% – 91%. Chemicals manufacturing plant utilization is expected to be approximately 73% – 81%.
Corporate Adjusted Earnings are expected to be a net expense of approximately $500 – $700 million in the third quarter and a net expense of approximately $1,900 – $2,300 million for the full year 2024. This excludes the impact of currency exchange rate and fair value accounting effects.