Royal Dutch Shell plc expects to record lower overall upstream production in 3Q2019 than a year ago, but liquefied natural gas (LNG) volumes are expected to rise sequentially.
In its first preliminary update of quarterly projections, Shell said upstream output would average 2.60-2.65 million boe/d, versus 2.67 million boe/d in 3Q2018. LNG volumes are estimated at 9.0-9.3 million metric tons (mmt), versus sequential volumes of 8.18 mmt.
“Natural gas liquids and gas prices continue to be disconnected from Brent compared to 3Q2018,” Shell noted. However, management expects to deliver “strong trading and optimization performance,” in particular for its LNG operations.
“More than 80% of our term contracts for LNG sales in 2018 were oil-price linked with a price lag of typically three-to-six months,” management noted. As in previous quarters, cash flow from operations in Integrated Gas “can be impacted by margining resulting from movements in the forward commodity curves.”
Shell, the No. 1 global gas seller, said the Integrated Gas unit’s production, which includes LNG volumes, is expected to average 930,000-960,000 boe/d in 3Q2019, compared with 924,000 boe/d in 3Q2018.
The first quarterly update by the European-based major, including the consensus collected for cash flow, is in response to feedback from the investor community, financial chief Jessica Uhl said.
“This is a further step in Shell’s ongoing journey to enhance disclosures and increase transparency,” Uhl said.
During 2Q2019, Shell’s total oil and gas output climbed 4% year/year to 3.58 million boe/d. However, it received $4.21/Mcf on average for its global gas, down 13% from 2Q2018. Global liquids prices fell to an average of $61.26/bbl, 8% lower year/year.
Gas volumes in 2Q2019 were 4.456 Bcf/d, up 5% year/year, while LNG volumes rose 2% to 8.66 million metric tons (mmt). Shell during 2Q2019 fetched 13% less for global gas, and liquids prices slid by 8%.
Shell also reported preliminary 3Q2019 estimates for its downstream arm, with expected refinery availability of 90-92% and oil product sales volumes of 6.70-7.35 million b/d. Chemicals manufacturing plant availability also is expected to be 90-92% on sales volumes of 3.9-4.0 mmt.
“We expect chemicals cracker and intermediate margins to be materially unchanged from 2Q2019,” management said.
Shell expects to record a net charge of $700-850 million for 3Q2019, excluding the impact of currency exchange rate effects. The currency movements, including a weakening Brazilian Real, is expected to have a negative earnings impact on the top of the range. Price sensitivity at the Shell group level is estimated at $6 billion/year per $10/bbl Brent price movements.
Shell also expects to record $250-350 million of well write-offs in 3Q2019 versus $149 million in the year-ago period, with no cash impact expected.
The 3Q2019 report is scheduled to be issued on Oct. 31.