Texas Freeze To Hit Shell’s Q1 Earnings

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Workers repair a power line in Austin, Texas, on Feb. 18. Photographer: Thomas Ryan Allison/Bloomberg

Shell is set to benefit from the higher commodity prices in the first quarter of 2021, but earnings will be adversely impacted by up to $200 million from the Texas Freeze in February, which hit the supermajor’s upstream, refining, and chemicals businesses. The Texas winter storm had an impact on Shell’s operations and is expected to have an aggregate adverse impact of up to $200 million on adjusted earnings, the company said in a Q1 update note on Wednesday. The impact would be up to $40 million on the upstream segment, up to $80 million on oil products, and around $60 million on the chemicals business.

The first-quarter performance is expected to be stronger than Q4 and the other quarters of last year, thanks to the upside in commodity prices this year. The refining indicative margin—an approximation of Shell’s global net realized refining margin—was around $2.6 a barrel for Q1. This was an improvement from $1.6 per barrel in the fourth quarter of 2020.

Shell is scheduled to report Q1 earnings on April 29.

Higher oil prices and improved refining margins this year are expected to help Shell and other supermajors to start recovering financially from the 2020 shock.

Last year, Shell’s profit plunged by 87 percent compared to 2019 due to the crash in oil demand and prices that hit both the upstream and downstream divisions of the oil companies. After the end of the first quarter of 2020, when prices plummeted, Shell slashed its dividend for the first time since World War II to preserve cash and value in a highly uncertain macroeconomic environment.

Helped by higher oil prices, this year could mark the recovery for Big Oil, especially from the second quarter onwards, analysts say.

Earlier this week, BP said it was on track to reach its net debt goal reduction to $35 billion ahead of schedule and signaled a return to share buybacks.

The target was reached thanks to disposal proceeds and the very strong business performance in the first quarter of 2021, driven by trading, the price environment, and resilient operations, BP said.

By Charles Kennedy for Oilprice.com


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