Shell second quarter 2021 update note
Strong cash generation supports additional shareholder
distributions in the second half of 2021
The Hague, July 7, 2021 − As a result of strong
operational and financial delivery, combined with an improved
macro-economic outlook, Shell 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.
$ million |
Adjusted Earnings |
CFFO |
Integrated
Gas |
|
|
+$10/bbl
Brent |
1,100 |
|
1,200 |
|
+$10/bbl Japan
Customs-cleared Crude - 3 months |
1,100 |
|
1,200 |
|
Upstream |
|
|
+$10/bbl
Brent |
3,000 |
|
4,000 |
|
+$1/mmbtu Henry
Hub |
350 |
|
450 |
+$1/mmbtu EU
TTF |
150 |
|
200 |
Refining |
|
|
+$1/bbl
indicative refining margin |
500 |
|
— |
|
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.
Enquiries
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
entities. In this announcement “Shell”, “Shell Group” and “Group”
are sometimes used for convenience where references are made to
Royal Dutch Shell plc and its subsidiaries in general. Likewise,
the words “we”, “us” and “our” are also used to refer to Royal
Dutch Shell plc and its subsidiaries in general or to those who
work for them. These terms are also used where no useful purpose is
served by identifying the particular entity or entities.
“Subsidiaries”, “Shell subsidiaries” and “Shell companies” as used
in this announcement refer to entities over which Royal Dutch Shell
plc either directly or indirectly has control. Entities and
unincorporated arrangements over which Shell has joint control are
generally referred to as “joint ventures” and “joint operations”,
respectively. Entities over which Shell has significant influence
but neither control nor joint control are referred to as
“associates”. The term “Shell interest” is used for convenience to
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.
Alternative Performance (non-GAAP)
Measures
This announcement includes certain measures that
are not defined by generally accepted accounting principles (GAAP)
such as IFRS, including Adjusted Earnings, Adjusted EBITDA, Cash
flow from operating activities excluding working capital movements,
Cash capital expenditure, Net debt and Underlying opex. We define
Adjusted EBITDA (FIFO basis) as income/(loss) attributable to Royal
Dutch Shell plc shareholders adjusted for identified items; tax
charge/(credit); depreciation, amortisation and depletion;
exploration well write-offs and net interest expense. We also use
Adjusted EBITDA on a CCS basis as the current cost of supplies
adjustment aims to remove the impact of price changes on our
inventories in our Oil Products and Chemicals segments, therefore
enabling comparisons over time. Adjusted Earnings is defined as
income/(loss) attributable to shareholders adjusted for the cost of
supplies and excluding identified items. Cash flow from operating
activities excluding working capital movements is a measure used by
Shell to analyse its operating cash generation over time excluding
the timing effects of changes in inventories and operating
receivables and payables from period to period. Working capital
movements are defined as the sum of the following items in the
Consolidated Statement of Cash Flows: (i) (increase)/decrease in
inventories, (ii) (increase)/decrease in current receivables, and
(iii) increase/(decrease) in current payables. Cash capital
expenditure is the sum of the following lines from the Consolidated
Statement of Cash flows: Capital expenditure, Investments in joint
ventures and associates and Investments in equity securities. Net
debt is defined as the sum of current and non-current debt, less
cash and cash equivalents, adjusted for the fair value of
derivative financial instruments used to hedge foreign exchange and
interest rate risks relating to debt, and associated collateral
balances. Underlying opex is a measure aimed at facilitating a
comparative understanding of performance from period to period by
removing the effects of identified items, which, either
individually or collectively, can cause volatility, in some cases
driven by external factors.
We are unable to provide a reconciliation of
these forward-looking Non-GAAP measures to the most comparable GAAP
financial measures because certain information is dependent on
future events, some of which are outside the control of Shell, such
as oil and gas prices, interest rates and exchange rates. Moreover,
estimating such GAAP measures with the required precision necessary
to provide a meaningful reconciliation is extremely difficult and
could not be accomplished without unreasonable effort. Non-GAAP
measures in respect of future periods, which cannot be reconciled
to the most comparable GAAP financial measure are estimated in a
manner which is consistent with the accounting policies applied in
Royal Dutch Shell plc’s consolidated financial statements.
Forward-looking statements
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
statements are statements of future expectations that are based on
management’s current expectations and assumptions and involve known
and unknown risks and uncertainties that could cause actual
results, performance or events to differ materially from those
expressed or implied in these statements. Forward-looking
statements include, among other things, statements concerning the
potential exposure of Royal Dutch Shell to market risks and
statements expressing management’s expectations, beliefs,
estimates, forecasts, projections and assumptions. These
forward-looking statements are identified by their use of terms and
phrases such as “aim”, “ambition”, “anticipate”, “believe”,
“could”, “estimate”, “expect”, “goals”, “intend”, “may”,
“objectives”, “outlook”, “plan”, “probably”, “project”, “risks”,
“schedule”, “seek”, “should”, “target”, “will” and similar terms
and phrases. There are a number of factors that could affect the
future operations of Royal 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, 2020 (available at
www.shell.com/investors 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, July 7, 2021. 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.
LEI number of Royal Dutch Shell plc:
21380068P1DRHMJ8KU70Classification: Inside Information
This announcement contains inside
information.July 7, 2021
Contacts:- Linda M. Coulter, Company Secretary-
Media: International +44 (0) 207 934 5550; USA +1 832 337 4355