Shell’s strong cash generation supports additional shareholder distributions in H2 2021

Royal Dutch Shell Plc

As a result of strong operational and financial delivery, combined with an improved macro-economic outlook, Royal Dutch Shell plc (LON:RDSA) will move to the next phase of its capital allocation framework and, subject to final Board approval, increase total shareholder distributions to within the range of 20-30% of CFFO, starting at the Q2 results announcement. The level of additional distributions will be determined with full visibility of the Q2 financial results.

In the second quarter, Shell expects to have further reduced its net debt, although the extent of the reduction will be moderated by working capital movements. In conjunction with the increased distributions, Shell will retire its net debt milestone of $65 billion and will continue to target further strengthening of its balance sheet and AA credit metrics. 2021 cash capex will remain below $22 billion.

Shell second quarter 2021 update note

The following is an update to the second quarter 2021 outlook. The impacts presented here may vary from the actual results and are subject to finalisation of the second quarter 2021 results, which will be announced on July 29, 2021. Unless otherwise indicated, all outlook statements exclude identified items.

Integrated Gas

Adjusted EBITDA

  • Production is expected to be between 900 and 960 thousand barrels of oil equivalent per day.
  • LNG liquefaction volumes are expected to be between 7.1 and 7.7 million tonnes, reflecting additional unplanned maintenance activities, which are expected to impact trading and optimisation results.
  • Trading and optimisation results are expected to be significantly below average and similar to the first quarter 2021.
  • Underlying opex is expected to be between $400 and $500 million lower than the first quarter 2021, which included higher provisions related to counterparty credit risk.

Adjusted Earnings

  • Pre-tax depreciation is expected to be between $1.3 and $1.4 billion.
  • Taxation charge is expected to be between $300 and $600 million.

Cash flow from operations

  • Tax paid is expected to be between $200 and $400 million.
  • CFFO excluding working capital is expected to be positively impacted by cash flows related to variation margin.

Upstream

Adjusted EBITDA

  • Production is expected to be between 2,225 and 2,300 thousand barrels of oil equivalent per day.
  • Any positive impacts from currency effects are expected to be offset by higher Underlying opex from increased planned maintenance activities compared with the first quarter 2021.

Adjusted Earnings

  • Pre-tax depreciation is expected to be between $3.2 and $3.5 billion.
  • Taxation charge is expected to be between $500 and $900 million, which includes a one-off release of non-cash tax provision of approximately $600 million.

Cash flow from operations

  • Tax paid is expected to be between $750 and $1,100 million.

Oil Products

Adjusted EBITDA

  • Marketing margins are expected to be higher than the first quarter 2021, reflecting strong retail unit margins, partly offset by lower lubricant margins due to base oils and additives shortages.
  • Refining indicative margin is around $4.17/bbl. Definition and formula are provided at the end of this release.
  • Sales volumes are expected to be between 4,000 and 5,000 thousand barrels per day.
  • Refinery utilisation is expected to be between 75% and 79%.
  • Trading and optimisation results are expected to be average, similar to the first quarter 2021.
  • Underlying opex is expected to be between $200 and $400 million higher than the first quarter 2021, mainly due to an increase in marketing volumes.

Adjusted Earnings

  • Pre-tax depreciation is expected to be between $800 and $1,000 million.
  • Taxation charge is expected to be between $100 and $600 million.

Cash flow from operations

  • Tax paid is expected to be between $150 and $350 million.
  • CFFO excluding working capital is expected to be positively impacted by the lower cash cost of sales.
  • Working capital outflows are expected due to the higher commodity price environment.

Chemicals

Adjusted EBITDA

  • Chemicals margins are expected to be in line with the first quarter 2021.
  • Chemicals sales volumes are expected to be between 3,500 and 3,800 thousand tonnes.
  • Chemicals manufacturing plant utilisation is expected to be between 81% and 85%.
  • Underlying opex is expected to be between $100 and $150 million higher than the first quarter 2021.

Adjusted Earnings

  • Pre-tax depreciation is expected to be between $250 and $300 million.
  • Taxation charge is expected to be between $50 and $200 million.

Cash flow from operations

  • Tax paid is expected to be up to $100 million.
  • CFFO is expected to be positively impacted by $200 to $300 million due to the timing effect of dividends received from Joint Ventures & Associates.

Corporate

  • Corporate segment Adjusted Earnings are expected to be a net expense of $300 to $450 million for the second quarter, impacted by favourable movements in deferred tax positions. This excludes the impact of currency exchange effects.

Full-year price and margin sensitivities

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

$ millionAdjusted EarningsCFFO
Integrated Gas  
+$10/bbl Brent1,100  1,200 
+$10/bbl Japan Customs-cleared Crude – 3 months1,100  1,200 
Upstream  
+$10/bbl Brent3,000  4,000 
+$1/mmbtu Henry Hub350  450 
+$1/mmbtu EU TTF150  200 
Refining  
 +$1/bbl indicative refining margin500  

Indicative refining margin

The indicative margin is an approximation of Shell’s global net realised refining margin, calculated using price and margin markers from third parties’ databases. It is based on an approximation of Shell’s crude intake and production from refinery units. The actual margins realised by Shell may vary due to factors including specific local market effects, refinery configuration, crude diet, operating decisions and production.

Q2 2021: $4.17/bbl

Q1 2021: $2.65/bbl

Q4 2020: $1.59/bbl

Q3 2020: $0.84/bbl

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

Calculation formula ($/bbl) – note that brackets indicate a negative sign

Brent*(25%) + MSW*(11%) + LLS*(24.5%) + Dubai*(24.5%) + Urals CIF EU*(13%) + NWE Naphtha (RDAM FOB Barge)*8% + NWE Mogas premium unleaded*12.50% + NWE Kero*11.50% + NWE AGO*24.5% + NWE Benzene*1% + Sing Fueloil 380 cst*6.50% + Edmonton ULG Reg*3.50% + Edmonton ULSD*3.50% + USGC Normal Butane*1.50% + USGC LS No 2 Gasoil*7% + USGC Natural Gas*(2%) + USGC CBOB*15% + RINS*(20.50%) + NWE Propylene Platts*0.50% – $1.7/bbl

Consensus

The consensus collection for quarterly Adjusted Earnings and CFFO excluding working capital movements, managed by Vara research, will be published on 22 July 2021.

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