Shell third quarter 2020 update note
30 Septembre 2020 - 8:00AM
Shell third quarter 2020 update note
The Hague, September 30, 2020 − This is an update to the third
quarter 2020 outlook provided in the second quarter results
announcement on July 30, 2020. The impacts presented here may vary
from the actual results and are subject to finalisation of the
third quarter 2020 results.
Unless otherwise indicated, presented impacts relate to Adjusted
Earnings on a post-tax basis.
INTEGRATED GAS
- Production is expected to be between 820 and 860 thousand
barrels of oil equivalent per day.
- LNG liquefaction volumes are expected to be between 7.9 and 8.3
million tonnes.
- Trading and optimisation results are expected to be below
average.
- A one-off tax charge is expected to have a negative impact on
Adjusted Earnings in the range of $100 to $200 million, no cash
impact is expected in the third quarter.
- Approximately 80% of our term sales of LNG in 2020 have been
oil price linked with a price-lag of up to 6 months. Consequently,
lower realised prices due to this price-lag are expected to have a
significant impact on LNG margins in the third quarter.
- CFFO can be impacted by margining resulting from movements in
the forward commodity curves up until the last day of the quarter.
Margining inflows are expected to be in line with the second
quarter 2020.
UPSTREAM
- Production is expected to be between 2,150 and 2,250 thousand
barrels of oil equivalent per day, which includes a production
impact of 60 to 70 thousand barrels of oil equivalent per day from
hurricanes in the US Gulf of Mexico.
- Realised liquids prices in the first two months of this quarter
reflected a 15 to 20 percent discount to Brent, similar to the
discount in the second quarter 2020. Realised gas prices are
trending in line with Henry Hub.
- Depreciation is expected to be at a similar level as in the
second quarter 2020.
- Similar to the second quarter 2020, while Adjusted Earnings are
expected to show a loss, CFFO is not expected to reflect equivalent
cash tax effects due to the build-up of deferred tax positions in a
number of countries.
OIL PRODUCTS
- Refinery utilisation is expected to be between 64% and
68%.
- Realised gross Refining margins are expected to be
significantly lower compared with the second quarter 2020.
- Sales volumes are expected to be between 4,000 and 5,000
thousand barrels per day.
- Trading and optimisation results are expected to be lower than
the historical average and significantly lower compared with the
second quarter 2020.
- Marketing margins are expected to be significantly higher
compared with the second quarter 2020.
- Compared with the second quarter 2020, Adjusted Earnings are
expected to be negatively impacted by $200 to $400 million due to
higher volume driven activity, phasing of maintenance activities
and provisions.
- A one-off deferred tax benefit is expected to have a positive
impact on Adjusted Earnings of around $100 million, no cash impact
is expected in the third quarter.
- Working capital movements are typically impacted by movements
between the quarter opening and closing price of crude along with
changes in inventory volume. Inventory volumes are expected to be
lower compared with the end of the second quarter 2020, impacting
working capital positively.
CHEMICALS
- Chemicals manufacturing plant utilisation is expected to be
between 79% and 83%.
- Chemicals sales volumes are expected to between 3,700 and 4,000
thousand tonnes.
- Compared with the second quarter 2020, Adjusted Earnings are
expected to be negatively impacted by around $100 million due to
increased activity, provisions and phasing of maintenance
activities.
CORPORATE
- Corporate segment Adjusted Earnings are expected to be a net
expense at the lower end of the $800 to $875 million range for the
third quarter. This excludes the impact of currency exchange
effects.
OTHER
- As per previous disclosures, CFFO price sensitivity at Shell
Group level is estimated to be $6 billion per annum for each $10
per barrel Brent price movement.
- Note that this price sensitivity is indicative and is most
applicable to smaller price changes than those in the current
environment and in relation to the full-year results. This excludes
the short-term impacts from working capital movements and
cost-of-sales adjustments.
- Post-tax impairment charges in the range of $1.0 to $1.5
billion are expected for the third quarter. Impairment charges are
reported as identified items.
Consensus
The consensus collection for quarterly Adjusted Earnings and
CFFO excluding working capital movements, managed by VARA research,
is scheduled to be opened for submission on 8 October 2020, closed
on 21 October 2020, and made public on 22 October 2020.
Recent publications
Two recent news publications are highlighted below. They do not
to impact the third quarter 2020 results.
- In an interview published today, Ben van Beurden, Chief
Executive Officer of Royal Dutch Shell, discusses how Shell has
responded to the COVID-19 pandemic, explains the drive behind the
enhanced ambition to be a net-zero emissions energy business, and
outlines the direction of the ongoing restructuring of Shell’s ways
of working and organisation. Specifically, the simpler, streamlined
and lower-cost organisation will focus on:
- Upstream providing strong and resilient cash generation,
focused on accelerating value;
- reducing the Refining footprint to less than 10 sites, keeping
those sites that are strategically essential in key locations, with
flexibility to adapt and further integrate with the growing
Chemicals and Trading businesses;
- Integrated Gas having a larger focus on unlocking new and
expanding existing LNG markets and furthering customer-led energy
solutions; and
- a customer-focused organisation, providing lower and zero
carbon solutions through the Integrated Power, Biofuels and
Hydrogen businesses that are significant, competitive, and
complement existing businesses like Marketing.
Reduced organisational complexity,
along with other measures, are expected to deliver sustainable
annual cost savings of between $2.0 to $2.5 billion by 2022. This
will partially contribute to the announced underlying operating
cost reduction of $3.0 to $4.0 billion by the first quarter 2021.
Job reductions of 7,000 to 9,000 are expected (including around
1,500 people who have agreed to take voluntary redundancy this
year) by the end of 2022.
The full interview is available here:
https://www.shell.com/reshape
- Our Shell Scenarios team considered the implications of choices
societies could make while living with COVID-19 and explored what
this might mean for energy demand and the energy transition.
Explore the Rethinking the 2020s publication here:
https://www.shell.com/rethinkingthe2020s
Contacts
Media International: +44 (0) 207 934 5550
Media Americas: +1 832 337 4355
Cautionary Note
The companies in which Royal Dutch Shell plc
directly and indirectly owns investments are separate legal
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Dutch Shell” are sometimes used for convenience where references
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respectively. Entities over which Shell has significant influence
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indicate the direct and/or indirect ownership interest held by
Shell in an entity or unincorporated joint arrangement, after
exclusion of all third-party interest.
This announcement contains forward-looking
statements (within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995) concerning the financial condition,
results of operations and businesses of Royal Dutch Shell. All
statements other than statements of historical fact are, or may be
deemed to be, forward-looking statements. Forward-looking
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Dutch Shell and could cause those results to differ materially from
those expressed in the forward-looking statements included in this
announcement, including (without limitation): (a) price
fluctuations in crude oil and natural gas; (b) changes in demand
for Shell’s products; (c) currency fluctuations; (d) drilling and
production results; (e) reserves estimates; (f) loss of market
share and industry competition; (g) environmental and physical
risks; (h) risks associated with the identification of suitable
potential acquisition properties and targets, and successful
negotiation and completion of such transactions; (i) the risk of
doing business in developing countries and countries subject to
international sanctions; (j) legislative, fiscal and regulatory
developments including regulatory measures addressing climate
change; (k) economic and financial market conditions in various
countries and regions; (l) political risks, including the risks of
expropriation and renegotiation of the terms of contracts with
governmental entities, delays or advancements in the approval of
projects and delays in the reimbursement for shared costs; (m)
risks associated with the impact of pandemics, such as the COVID-19
(coronavirus) outbreak; and (n) changes in trading conditions. No
assurance is provided that future dividend payments will match or
exceed previous dividend payments. All forward-looking statements
contained in this announcement are expressly qualified in their
entirety by the cautionary statements contained or referred to in
this section. Readers should not place undue reliance on
forward-looking statements. Additional risk factors that may affect
future results are contained in Royal Dutch Shell’s Form 20-F for
the year ended December 31, 2019 (available at
www.shell.com/investor and www.sec.gov). These risk factors also
expressly qualify all forward-looking statements contained in this
announcement and should be considered by the reader. Each
forward-looking statement speaks only as of the date of this
announcement, September 30, 2020. Neither Royal Dutch Shell plc nor
any of its subsidiaries undertake any obligation to publicly update
or revise any forward-looking statement as a result of new
information, future events or other information. In light of these
risks, results could differ materially from those stated, implied
or inferred from the forward-looking statements contained in this
announcement.
We may have used certain terms, such as resources, in this
announcement that the United States Securities and Exchange
Commission (SEC) strictly prohibits us from including in our
filings with the SEC. Investors are urged to consider closely the
disclosure in our Form 20-F, File No 1-32575, available on the SEC
website www.sec.gov.
Scenarios don’t describe what will happen, or what should
happen, rather they explore what could happen. We base them on
plausible assumptions and quantification, and they are designed to
stretch management’s thinking and even to consider events that may
only be remotely possible. Scenarios, therefore, are not intended
to be predictions of likely future events or outcomes or a
strategy. Investors should not rely on them when making an
investment decision with regard to Royal Dutch Shell plc
securities.
LEI number of Royal Dutch Shell plc: 21380068P1DRHMJ8KU70