Shell stresses value over volume as oil and gas output drops 10% on year in Q3

Shell on Oct. 27 emphasized its focus on high-value production and helping alleviate Europe's energy crisis as it reported a 10% drop in oil and gas output in the third quarter from a year earlier to 2.77 million b/d of oil equivalent, reflecting its exit from the US Permian and Russian partnerships, as well as a strike in Australia.

The company reported output falls in both its upstream and LNG-focused 'integrated gas' divisions, with upstream oil output notably dropping 15% on the year to 1.27 million b/d, reflecting falls in all regions apart from South America.

Shell highlighted the impact of its exit from Russia following the invasion of Ukraine, including the Sakhalin-2 project and Salym onshore oil project, as well as its sale of Permian assets to ConocoPhillips in 2021. More recently it has announced its exit from the Aera Energy joint venture in California with a sale to asset manager IKAV.

Chief Financial Officer Sinead Gorman noted delays to two North Sea projects, the Pierce field depressurization or 'blowdown' project, intended to boost gas volumes and now expected on stream by year-end, and the Penguins oil project, for which the floating production storage and offloading vessel has yet to leave its fabrication yard in China.

Despite a sharp drop in North American production, with oil output down 19% in the region at 349,000 b/d, Gorman stressed the high value of Shell's Gulf of Mexico production and said output from Gulf of Mexico assets operated by Shell had hit its highest level in a decade in the quarter.

She underlined the importance of a "resilient" asset base, noting the company's selection as a partner in Qatar's North Field South project earlier in October and its final investment decision in September on the Rosmari-Marjoram gas project offshore Malaysia.

"Our upstream business performed extremely well," Gorman told journalists, alluding to a more-than-threefold increase in adjusted earnings in the segment. "All barrels are not created equal in that sense — you've seen us focus and move out of some positions which would not be so valuable."

Following a 12% fall in upstream oil and gas production compared with a year earlier to 1.79 million boe/d, Shell forecast a likely recovery to a range of 1.75 million-1.95 million boe/d in the fourth quarter, with Gorman highlighting hoped-for improvement at the Kashagan field in Kazakhstan.

Investment outlook

Responding to the International Energy Agency's latest World Energy Outlook and its warnings that new upstream projects could be incompatible with climate goals, outgoing CEO Ben van Beurden said governments needed to focus on reducing demand, and upstream investment would still be needed. "The decline rates in demand will be much lower than the decline rates you tend to have in supply if you don't invest, therefore continuing to invest to meet declining demand will be an important priority," he said.

In Shell's integrated gas division production was down a less steep 7% on the year at 924,000 boe/d, with liquefaction volumes down 2% at 7.24 million mt. Shell noted it had been impacted by a strike at the Prelude LNG facility offshore Australia, resolved in late-August, as well as production sharing contract effects and maintenance. It forecast fourth-quarter integrated gas production of 910,000-960,000 boe/d and liquefaction of 7 million-7.6 million mt.

Shell's refinery intake levels were also 12% down on the year at 1.43 million b/d. It forecast a potential increase in fourth-quarter refinery utilization in the 88%-96% range from 88% in the third quarter.

Announcing a dividend increase and new share buyback program, van Beurden said "We are delivering robust results at a time of ongoing volatility in global energy markets. We continue to strengthen Shell's portfolio through disciplined investment and transform the company for a low-carbon future."

Shell reported third-quarter adjusted earnings of $9.45 billion, more than double the year-ago level, but down 18% from the second quarter.

Van Beurden hands over as CEO at the end of 2022 to Shell's current director of Integrated Gas, Renewables and Energy Solutions, Wael Sawan.