Shell Flags Q4 Loss in Chemicals Unit, Puts $3.5 Billion Buyback in Question

Shell warned of a fourth-quarter loss in its chemicals and products unit, driven by weaker trading and margins, prompting analysts to question whether the company will maintain its $3.5 billion share buyback.

(Reuters) — Shell expects a loss in its chemicals and products business in the fourth quarter due in part to "significantly lower" oil trading results, the energy giant said in a trading update on Thursday, prompting questions over whether it will maintain the pace of its share buyback program.

Shell's chemicals and products earnings include revenue from its large trading desk for crude oil and refined products like diesel, gasoline and jet fuel. The segment will also be dragged down by an expected drop in chemicals margins to $140 a metric ton from $160 in the third quarter as well as a tax adjustment, the company said.

Energy majors do not typically divulge detailed results of their trading divisions, saying that publishing such details would reduce their competitive advantage.

Shell's chemicals and products business last recorded a quarterly loss in the final three months of 2024.

The company, meanwhile, maintained its oil, gas and liquefied natural gas output forecasts within previous guidance.

Analysts Cut Earnings Estimates, Question Share Buyback

Shell shares fell 2.6% by 1416 GMT, underperforming the broader European energy sector. that dipped 1%, as analysts parsed the revised outlook.

RBC analyst Biraj Borkhataria predicted Shell would exceed its targeted shareholder payout ratio of 40% to 50% of cash flow from operations over 12 months. The ratio stood at 48% in the last quarter.

"The question is whether the board/management team is willing to look beyond a particularly weak quarter and hold the line on the buyback at $3.5 billion, given a strong balance sheet," he wrote in a note.

"We are now less confident in Shell's ability to maintain its $3.5 billion buyback," HSBC analyst Kim Fustier said in a note.

UBS analyst Josh Stone cut his estimate for fourth-quarter net income by 14% to $3.6 billion and operating cash flow by 9% to $8.7 billion following the trading update, adding that he expects quarterly buybacks to be reduced to $3 billion.

Citi analyst Alastair Syme, meanwhile, lowered his estimates for net income by 11% to $3.83 billion and operating cash flow by 6% to $8.64 billion.

Output to Stay Within Previous Guided Range

Fourth-quarter oil-focused upstream production was expected to remain within the range of previous guidance at about 1.84 million barrels of oil equivalent per day to 1.94 million barrels of oil equivalent per day, Shell said. In the third quarter, it produced 1.83 million barrels of oil equivalent per day.

Integrated gas production was also forecast to be within previous guidance at 930,000 barrels of oil equivalent per day to 970,000 barrels of oil equivalent per day, it added. The company produced 934,000 barrels of oil equivalent per day in the third quarter.

Shell expects to liquefy between 7.5 million tons and 7.9 million tons of LNG, within a previous forecast of 7.4 million to 8 million tons.

It forecast its indicative refining margin to rise to $14 a barrel in the fourth quarter from $12 in the previous quarter.