Shell First Quarter 2022 Update Note

Source: www.gulfoilandgas.com 4/7/2022, Location: Asia

The following is an update to the first quarter 2022 outlook. Impacts presented may vary from the actual results and are subject to finalization of the first quarter 2022 results, published on May 5, 2022. Unless otherwise indicated, all outlook statements exclude identified items.

The prevailing volatility in commodity prices has led to larger ranges in the financial guidance for the quarter. Adjusted Earnings and Adjusted EBITDA updates are provided at a segment level while the CFFO update is provided at a Shell Group level.

This update note follows the 2021 segmentation to enable comparison with the fourth quarter 2021 results. From the first quarter results publication onwards we will align our reporting segments with our Powering Progress strategy and provide additional transparency in our Growth pillar. The Renewables & Energy Solutions business will be reported separately from Integrated Gas. Oil Products and Chemicals will be reorganized into two segments – Marketing and Chemicals & Products. The Shales assets in Canada will be reported as part of the Integrated Gas segment instead of the Upstream segment. There is no impact on a Shell Group level.

For the first quarter 2022 results, the post-tax impact from impairment of non-current assets and additional charges (e.g. write-downs of receivable, expected credit losses, and onerous contracts) relating to Russia activities are expected to be $4 to $5 billion. These charges are expected to be identified and therefore will not impact Adjusted Earnings. Details of the accounting treatment and impact of ongoing developments will be provided at the first quarter 2022 results announcement.

Integrated Gas (including Renewables and Energy Solutions)

Adjusted EBITDA
- Production is expected to be between 860 and 910 thousand barrels of oil equivalent per day (kboe/d) driven by maintenance activities, including the planned turnaround of one of the trains at Pearl GTL. The outlook includes ~ 50 kboe/d for the Canadian Shales assets.
- LNG liquefaction volumes are expected to be between 7.7 and 8.3 million tonnes.
- Trading and optimisation results for Integrated Gas (including Renewables and Energy Solutions) are expected to be higher compared to the fourth quarter 2021.
- Underlying Opex, for Integrated Gas (including Renewables and Energy Solutions) is expected to be between $1.7 and $1.9 billion.

Adjusted Earnings
- Pre-tax depreciation is expected to be between $1.2 and $1.4 billion.
- Taxation charge is expected to be between $700 and $1,100 million.
- Renewables and Energy Solutions segment results, which until now have been included in the Integrated Gas results, will be separately disclosed from the first quarter 2022 results announcement. Of the total Integrated Gas (including Renewables and Energy Solutions) Adjusted Earnings, Renewables and Energy Solutions contribution is expected to be between $100 and $600 million.

Upstream

Adjusted EBITDA
- Production is expected to be between 1,900 and 2,050 thousand barrels of oil equivalent per day. The outlook reflects a reduction of ~50 kboe/d related to the transfer of Canada Shales assets to Integrated Gas.
- Underlying Opex is expected to be between $2.3 and $2.7 billion.

Adjusted Earnings
- Pre-tax depreciation is expected to be between $2.8 and $3.1 billion.
- Taxation charge is expected to be between $2.8 and $3.3 billion.

Oil Products

Adjusted EBITDA
Marketing
- Marketing results are expected to be in line with the fourth quarter 2021.
- Underlying Opex is expected to be between $1.8 and $2.0 billion.
- Sales volumes are expected to be between 2,200 and 2,600 thousand barrels per day.

Products (Refining & Trading)
- Trading & Optimisation results are expected to be significantly higher than the fourth quarter 2021.
- The indicative refining margin is around $10.23/bbl, compared to $6.55/bbl in the fourth quarter 2021.
- Refinery utilisation is expected to be between 70% and 74%, better than the fourth quarter 2021 due to lower turnaround events.
- Underlying Opex is expected to be between $1.6 and $2.0 billion.
- Sales volumes are expected to be between 1,500 and 2,300 thousand barrels per day.

Adjusted Earnings
- Pre-tax depreciation is expected to be between $700 and $900 million of which approximately 50% for Marketing and 50% for Refining & Trading.
- Taxation charge is expected to be between $400 and $700 million of which approximately 20-30% for Marketing and 70-80% for Refining & Trading.
- As part of the ongoing re-segmentation efforts, the pipeline business is being transferred from Marketing to the Refining & Trading sub-segment as of the first quarter 2022.The pipelines business had earnings of approximately $150 million in the fourth quarter 2021. There is no impact on overall Oil Products Adjusted Earnings.

Chemicals

Adjusted EBITDA
- Chemicals margins are expected to be in line with the fourth quarter 2021 due to weaker unit margins from higher feedstock and utility costs offset by higher utilisation.
- Chemical sales volumes are expected to be between 3,100 and 3,600 thousand tonnes.
- Chemicals manufacturing plant utilisation is expected to be between 78% and 82%, better than the fourth quarter 2021 due to lower turnaround events.
- Underlying Opex is expected to be between $800 and $1,000 million.

Adjusted Earnings
- Pre-tax depreciation is expected to be between $250 and $300 million.
- Taxation charge is expected to be a credit of up to $100 million.
- Adjusted Earnings are expected to be in line with fourth quarter 2021 due to higher feedstock and utility costs offset by higher utilisation.

Corporate
Corporate segment Adjusted Earnings are expected to be a net expense of $450 to $650 million for the fourth quarter. This excludes the impact of currency exchange rate effects.

Shell Group

CFFO
- Tax paid is expected to be between $1.8 and $2.3 billion.
- CFFO is expected to be negatively impacted by very significant working capital outflows as price increases impacting inventory have led to a cash outflow of around $7 billion. Reflecting the unprecedented volatility in commodity prices prevailing up to the end of the quarter, material additional movements could be seen in CFFO from margining effects on derivatives, changes in inventory volumes and in accounts payable and receivables.

Full-year price and margin sensitivities
The Adjusted Earnings and CFFO price and margin sensitivities are indicative and subject to change. These are in relation to the full-year results and exclude short-term impacts from working capital movements, production seasonality, cost-of-sales adjustments and derivatives. Sensitivity accuracy is subject to trading and optimisation performance, including short-term opportunities, depending on market conditions. These sensitivities are reviewed and updated annually.

Indicative refining margin
The indicative margin is an approximation of Shell’s global gross refining unit margin, calculated using price markers from third parties’ databases. It is based on a simplified crude and product yield profile at a nominal level of refining performance. The actual margins realised by Shell may vary due to factors including specific local market effects, refinery maintenance, crude diet optimisation, operating decisions and product demand.

Gross refining unit margin is defined as the hydrocarbon margin net of purchased/sold utilities, additives and relevant freight costs, divided by crude and feedstock intake in barrels. It is only applicable to the impact of market pricing on refining business performance, excluding trading margin.

Actual historical indicative margins based on the 2021 indicative margin formula are available on the Refining & Trading page in the Quarterly Data Book.

Q1 2022: $10.23/bbl
Q4 2021: $6.55/bbl
Q3 2021: $5.70/bbl
Q2 2021: $4.17/bbl
Q1 2021: $2.65/bbl

The formula provided will be reviewed quarterly and typically updated annually, reflecting any changes in our refining portfolio.

UPDATED Calculation formula ($/bbl) - note that brackets indicate a negative sign Brent*(29.0%) + MSW*(11.5%) + LLS*(16.0%) + Dubai*(33.5%) + Urals CIF EU*(7.5%) + NWE Naphtha (RDAM FOB Barge)*9.5% + NWE Mogas premium unleaded*13.0% + NWE Kero*12.0% + NWE AGO*27% + NWE Benzene*1% + Sing Fueloil 380 cst*7.5% + USGC Normal Butane*3.5% + USGC LS No 2 Gasoil*8.0% + USGC Natural Gas*(2.0%) +TTF Natural Gas*(1%)+ USGC CBOB*14.5% + RINS*(22.0%) + NWE Propylene Platts*1% – $0.92/bbl

Urals CIF EU benchmark weighting has reduced from 13% to 7.5% following the decision to stop buying Russian crude on the spot market. Shell has not renewed longer-term contracts for Russian oil, and will only do so under explicit government direction, but we are legally obliged to take delivery of crude bought under contracts that were signed before the invasion. The current volatile state of oil markets and the ongoing efforts to reduce term volumes of Russian sourced feedstock, may mean this formula will be updated on quarterly basis in 2022.

Consensus
The consensus collection for quarterly Adjusted Earnings, Adjusted EBITDA according to the 2021 segmentation and CFFO & CFFO excluding working capital movements at a Shell group level, managed by Vara research, will be published on 28 April 2022. Second quarter 2022 consensus will be collected in July based on the revised (2022) segmentation.


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