Company Reports

No-moat Shell's adjusted first-quarter earnings fell to $7.7 billion from $9.6 billion the year before on weakness across all segments. However, results surpassed expectation largely on greater-than-anticipated integrated gas segment earnings. Our fair value estimate is unchanged.

New Shell CEO Wael Sawan is sending the right message—that returns will take priority over growth—as he seeks to close the valuation gap with US peers. While it might not be enough, we believe the key actions accompanying the message, including reduced spending and increased distributions, are positive and crucial steps. Also, while the long-term outlook remains uncertain, with most guidance items only covering through 2025, we anticipate that the focus on returns will remain intact beyond then.

No-moat Shell's adjusted fourth-quarter earnings surpassed market expectations, falling to $7.3 billion from $9.8 billion the year before on weaker results in the integrated gas segment. Total production volumes were largely flat from the year before. Our fair value estimate is unchanged.

No-moat Shell's adjusted third-quarter earnings fell to $6.2 billion from $9.5 billion the year before, largely meeting market expectations, on lower oil and gas prices, lower production volumes, which were offset only in part by slightly higher refined product margins and stronger chemical margins. Total production fell to 2.706 thousand barrels of oil equivalent per day from 2,766 mboe/d last year largely because of divestments and planned maintenance.

ExxonMobil confirmed prior Wall Street Journal news reports by announcing on Oct. 11 its intention to acquire narrow-moat Pioneer Natural Resources in an all-stock transaction valued at $59.5 billion or $253 per share, based on ExxonMobil’s closing price on Oct 5. ExxonMobil shares have been slightly lower since then, implying a per-share value of about $247 based on ExxonMobil’s closing price on Oct. 11 and the exchange ratio of 2.3234 for every one Pioneer share. That is a 22% premium to our Pioneer fair value estimate of $203 per share, which assumes a long-term oil price of $60/barrel. This suggests a modest reduction in our fair value estimate for ExxonMobil once the deal is considered, but that is largely offset by higher oil prices since our last update as well as value assigned to synergies, which nets out leaving our fair value estimate unchanged. The acquisition price implies a long-term oil price of about $70/bbl, which we don't consider unreasonable, suggesting the valuation for Pioneer, while above our fair value estimate, is fair. We see no impediments to the deal closing in first-half 2024 as expected.

New Shell CEO Wael Sawan is sending the right message—that returns will take priority over growth—as he seeks to close the valuation gap with U.S. peers. While it might not be enough, we believe the key actions accompanying the message, including reduced spending and increased distributions, are positive and crucial steps. Also, while the long-term outlook remains uncertain, with most guidance items only covering through 2025, we anticipate that the focus on returns will remain intact beyond then.

No-moat Shell's adjusted second-quarter earnings fell to $5.1 billion from $11.5 billion the year before on lower oil and gas prices, lower production volumes, and weaker refining margins. Total production fell to 2,731 thousand barrels of oil equivalent per day from 2,898 mboe/d last year largely because of divestments.

At Shell’s first capital markets day in two years, new CEO Wael Sawan and his team sent the right message—that returns would take priority over growth—but it was likely found wanting by investors. Although, we believe the key actions accompanying the message—reduced spending and increased distributions—are positive and crucial steps, they are unlikely to be enough to close the valuation gap with U.S. peers. Furthermore, the long-term outlook remains uncertain with most guidance items only covering through 2025. However, we believe the new team has Shell heading in the right direction and places the company as one of the more compelling options among European integrated oils. Incorporating the updated items into our model, leaves our fair value estimate and moat rating unchanged. Shares are only trading at a modest discount, but they are supported by a relatively high shareholder yield.

No-moat Shell reported first-quarter results increased to $9.6 billion from $9.1 billion despite lower oil and gas prices thanks to lower operating expenses and stronger chemicals and products trading results. Total production fell to 2,902 mboe/d from 2,962 mboe/d last year because of divestments that offset the benefit of reduced maintenance.

Shell’s latest strategic plan to adapt to the energy transition and achieve its target of a net-zero portfolio by 2050 is similar to peers' but different in an important way. Like peers with similar targets and goals, Shell plans to expand its marketing retail operations and reduce oil production over time, but unlike peers, Shell has refrained from offering up an explicit renewable generation capacity target. Given the competitiveness of the space and the potential for lower returns as more firms enter the space, this is likely prudent.

Shell reported fourth-quarter results that exceeded market expectations as well as third-quarter levels. Thanks to high oil and natural gas prices during the quarter that offset lower volumes, adjusted earnings increased to $9.8 billion from $6.4 billion a year ago. Adjusted earnings exclude $4.2 billion of gains due to fair value accounting of commodity derivatives and $1.9 billion in charges related to windfall taxes in the EU and U.K. Earnings were higher compared with the third quarter because of a rebound in integrated gas results from stronger trading and optimization results that offset the impact of lower prices on the upstream segment. This segment continues to be differentiating for Shell and an advantage in today’s volatile gas markets. For the year, total production volumes fell 12% on maintenance, divestments, loss of Sakhalin volumes, and production sharing contract effects. Operating cash flow before working capital increased slightly to $12.0 billion from $11.1 billion last year, while a large release of working capital resulted in organic free cash flow of $16.2 billion.

Shell’s latest strategic plan to adapt to the energy transition and achieve its target of a net-zero portfolio by 2050 is similar to peers' but different in an important way. Like peers with similar targets and goals, Shell plans to expand its marketing retail operations and reduce oil production over time, but unlike peers, Shell has refrained from offering up an explicit renewable generation capacity target. Given the competitiveness of the space and the potential for lower returns as more firms enter the space, this is likely prudent.

Although the third quarter brought record earnings for Exxon and nearly a record for Chevron, including both exceeding market expectations, we do not plan any material increases to our fair value estimates. As a result, both trade at a premium of 9% and 21%, respectively.

Shell reported third-quarter results that surpassed market expectations but fell back from second-quarter levels. Thanks to high oil and natural gas prices during the quarter, adjusted earnings soared to $9.5 billion from $4.1 billion a year ago. Adjusted earnings exclude $1.0 billion of losses due to fair value accounting of commodity derivatives. Earnings were lower compared with the second quarter because of lower integrated gas results from weaker trading and optimization results and lower refining results from narrower margins. Operating cash flow before working capital fell to $16.7 billion from $17.5 billion last year, resulting in organic free cash flow of $7.9 billion.

After updating our fair value estimates for the no-moat European major integrated oils—BP (0.74 price to fair value), Shell (0.79), and TotalEnergies (0.76)—they continue to trade significant discounts to their narrow-moat U.S. counterparts Chevron (1.04) and Exxon (0.92). Outside of idiosyncratic company issues, the reason for the discount between the two groups is not entirely clear but is probably the result of a confluence of factors.

Shell’s latest strategic plan to adapt to the energy transition and achieve its target of a net-zero portfolio by 2050 is similar to peers' but different in an important way. Like peers with similar targets and goals, Shell plans to expand its marketing retail operations and reduce oil production over time, but unlike peers, Shell has refrained from offering up an explicit renewable generation capacity target. Given the competitiveness of the space and the potential for lower returns as more firms enter the space, this is likely prudent.

Shell reported second-quarter results that surpassed market expectations and continued to improve from previous quarters. Thanks to high oil and natural gas prices during the quarter and strong power trading results, adjusted earnings soared to $11.5 billion from $5.5 billion a year ago. Adjusted earnings exclude $4.3 billion of post-tax impairment reversals and $1.0 billion of mark-to-market gains. Operating cash flow before working capital improved materially to $23.0 billion from $14.2 billion last year, resulting in organic free cash flow of $13.7 billion. Year to date, Shell has nearly doubled organic free cash flow from the same period last year.

Shell reported first-quarter results that surpassed market expectations and demonstrated further improvement from previous quarters. Thanks to high oil and natural gas prices during the quarter and strong trading results, adjusted earnings soared to $9.1 billion from $3.2 billion a year ago. Adjusted earnings exclude a $3.9 billion posttax charge related to the decision to exit Russia. Operating cash flow before working capital improved materially to $22.2 billion from $12.7 billion last year, resulting in organic free cash flow of $10.3 billion. Ongoing capital discipline and cost-reduction efforts continued to deliver higher earnings and cash flow than in the past at similar commodity price levels.

After incorporating the most recent oil and gas prices into our models, we have increased our fair value estimates for Shell, BP and TotalEnergies by 18% on average. Our models now include oil prices of $101/barrel and $95/bbl in 2022 and 2023, respectively, while our long-term midcycle price assumption remains $60/bbl. Total now trades at the greatest discount at 0.74 of our fair value estimate. All three remain rated as no-moat firms.

Shell’s latest strategic plan to adapt to the energy transition and achieve its target of a net-zero portfolio by 2050 is similar to peers' but different in an important way. Like peers with similar targets and goals, Shell plans to expand its marketing retail operations and reduce oil production over time, but unlike peers, Shell has refrained from offering up an explicit renewable generation capacity target. Given the competitiveness of the space and the potential for lower returns as more firms enter the space, this is likely prudent.