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Shell's (RDS.A) Q4 Earnings Update: All You Need to Know

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Royal Dutch Shell plc will use the remaining $5.5 billion of the Permian sale proceeds to buy back stock “at pace.” The cash pledge is part of the $7 billion payout investors got from $9.5 billion that the company received last year for its assets in America’s biggest oil field. Shell already commenced up to $1.5 billion of share repurchases in December, which will continue through Jan 28, 2022.

Shell released a preliminary report for the October-December period wherein the Anglo-Dutch biggie informed that the Permian-related disbursements are over and above the regular shareholder distributions of 20-30% of cash flow from operations.

At the same time, Shell cautioned that its marketing division, which includes the world's biggest network of petrol stations, will see earnings fall sequentially due to Omicron-induced demand dip and some foreign exchange effects in Turkey. But the performance of the firm’s trading division — instrumental in helping the supermajor partly cushion the impact of the coronavirus-induced oil price slump — is likely to be “significantly higher” for the Integrated Gas business on the back of surging LNG prices.

Now, let’s dig into some other segment-wise selected items from Friday’s release.

Upstream

According to the latest update, Shell’s upstream production fell by 7.2% on a year-over-year basis in the fourth quarter of 2021 at the midpoint of the guidance. The supermajor is estimating its output in the range of 2,150 to 2,250 MBOE/d compared to 2,371 MBOE/d a year ago. Tax charges are expected to hurt earnings in the range of $2.4-2.8 billion.

Integrated Gas

Shell’s LNG liquefaction volumes are expected in the range of 7.7 to 8.3 million tons, which translates into a decline of around 2.6%. Shell’s integrated gas production is also expected to decrease on a year-over-year basis to the range of 910,000 to 950,000 barrels of oil equivalent per day (BOE/d), or 930,000 BOE/d at the midpoint. It was 942,000 BOE/d in the fourth quarter of 2020. The decreases have been blamed on unscheduled maintenance, primarily in Australia.

Oil Products

The midpoint of management’s oil product sales guidance equates to 4.5 million barrels per day, compared to 4.781 in the corresponding period of 2020. Refinery utilization is estimated between 69% and 73%, against the year-ago quarter’s 72%. While refining margins improved in the December quarter, trading results are seen to be way below third-quarter levels, pushing the unit in the red.

Chemicals

Chemical sales may be in the range of 3.3 to 3.6 million tons, while margins are likely to decrease considerably from the third quarter on narrowing base chemicals margin. Manufacturing plant availability is down between 74% and 78% (compared to 79% in the corresponding period of 2020). Overall, the segment is expected to report break-even earnings. 

Q4 Estimates

The Zacks Rank #3 (Hold) company, which is set to consolidate its dual headquarters in London over The Hague and become a single United Kingdom (“UK”) entity, is slated to release fourth-quarter 2021 results on Feb 3. The current Zacks Consensus Estimate for Shell’s to-be-reported quarter is a profit of $1.45 per share.

Key Picks

Some better-ranked players in the energy space are Earthstone Energy (ESTE - Free Report) , Vermilion Energy (VET - Free Report) and Murphy USA (MUSA - Free Report) . Each of these companies sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earthstone Energy has a projected earnings growth rate of 112.2% for next year. The Zacks Consensus Estimate for ESTE’s 2022 earnings has been revised 34.8% upward over the past 60 days.

Earthstone beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 93.2%. ESTE shares have gained around 123.3% in a year.

Vermilion Energy is valued at around $2.3 billion. The Zacks Consensus Estimate for VET’s 2022 earnings has been revised 35.1% upward over the past 60 days.

Vermilion Energy has topped the Zacks Consensus Estimate by an average of 54.4% in the trailing four quarters, including a 100% beat in Q3.  VET shares have gained around 170.2% in a year.

MUSA is valued at around $5 billion. Murphy USA’s consensus estimate for 2022 has been revised 7.9% upward over the past 60 days.

MUSA beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 20.9%. Murphy USA has rallied around 53.1% in a year.


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