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Shell upstream oil and gas division shows earnings, production recovery in Q1

Highlights

Q1 upstream earnings positive for first time in a year

Oil product sales plunge in Q1 on pandemic impact

Refining margins show gradual improvement

London — Shell is set to report positive earnings in its upstream oil and gas division for the first time in a year in its Q1 results, as the Anglo-Dutch major shows signs of at least partial recovery, hampered by weak oil product sales, according to an update April 7.

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The preview ahead of Q1 results to be published on April 29 was more muted in tone compared with an upbeat progress report from BP the day before, but noted the boost from higher prices as well as a partial recovery in Shell's upstream oil and gas production volumes.

The latter likely reflects an easing of the OPEC+ cuts imposed in response to last year's demand collapse. Shell estimated its upstream production for the first quarter in a range of 2.40-2.48 million b/d of oil equivalent, down from 2.71 million boe/d a year earlier, but up from 2.37 million boe/d in the fourth quarter 2020.

In the upstream, "adjusted earnings are expected to be positive in the first quarter 2021, capturing the upside from the current commodity price environment," Shell said. The company has recorded significant losses in its upstream division in the last year, including a $1.5 billion adjusted loss in the second quarter 2020.

Slower progress

In the LNG-focused 'integrated gas' division, liquefaction volumes remained significantly below year-ago levels in the first quarter, in a range of 7.8-8.4 million mt, down from 8.88 million mt a year earlier, while LNG trading and optimization results were "significantly below average," Shell said.

In the downstream, oil product sales were lower compared with both a year ago and the fourth-quarter of 2020, likely reflecting tough pandemic lockdown conditions in markets such as Europe, although refining margins and utilization both showed signs of recovering from fourth-quarter levels, the note showed.

It estimated Q1 oil product sales volumes at 3.7-4.7 million b/d, down from 5.3 million b/d a year earlier and 4.8 million b/d in the fourth quarter 2020, while the company's indicative refining margin rose to $2.7/b in the first quarter, from $1.6/b in Q4 2020.

Oil product trading and optimization results are expected to be "average and higher than the fourth quarter," Shell said.

The update comes after BP on April 6 said it was on track to reduce its debt levels quicker than expected, thanks to "very strong" business performance, higher prices and asset sales in the first quarter.