FinancialMediaGuide reports that Shell is facing challenges due to weak results from its chemicals and oil products divisions. The company previously reported a decline in profits and forecasted losses for the fourth quarter, raising concerns about the continuation of its $3.5 billion share buyback program.
This forecast has become a topic of discussion among analysts, who have revised their estimates and expressed doubts about the company’s next steps. According to FinancialMediaGuide, the main reason for the decline in performance is significantly lower trading in oil and chemical products, which threatens the expected profits from Shell’s key business areas.
As noted in the company’s recent report, several factors are contributing to the drop in profitability. These include a reduction in the chemical sector’s margin to $140 per tonne from $160 in the third quarter and potential declines in tax revenues, making the current forecasts less optimistic. The expected profit contraction especially complicates maintaining the buyback plans, raising questions among investors.
For major energy companies like Shell, it is common to withhold detailed data on the activities of their trading divisions, including crude oil and oil product trading such as diesel and gasoline. However, according to analysts from FinancialMediaGuide, this step is often aimed at protecting the company’s competitive advantages amid market volatility.
Amid weakening financial performance in its chemicals and oil products divisions, the $3.5 billion share buyback program is now under increased scrutiny. Analysts have revised their forecasts: for some firms, such as RBC, there is a likelihood that Shell may not be able to sustain its high pace of share repurchases. As noted by Biraj Borkhataria, senior analyst at RBC, the question is whether the company’s management is willing to “turn a blind eye” to weak quarterly results and continue fulfilling its financial obligations to buy back shares at the current level.
Although Shell has maintained its forecasts for oil, gas, and liquefied natural gas (LNG) production, analysts are concerned about the short-term outlook. According to the projections, oil production in the fourth quarter is expected to range from 1.84 to 1.94 million barrels of oil equivalent per day. This is nearly unchanged from the previous quarter, where production was 1.83 million barrels.
At the same time, analysts at UBS and Citi have also revised their forecasts. According to updated data, Shell’s net profit for the fourth quarter could decrease by 14%, which corresponds to a 9% reduction in operating cash flow. UBS forecasts that the share buyback may be cut to $3 billion, reflecting more cautious expectations regarding future results.
However, analysts emphasize that the expected increase in refining margins in the fourth quarter could offset some losses, reaching around $14 per barrel. But this is clearly insufficient to ensure the company’s stability amid uncertainty in the oil markets.
At FinancialMediaGuide, we predict that Shell will be forced to adapt its share buyback strategy by reducing volumes in response to deteriorating financial results and changing market conditions. This could also lead to adjustments in more ambitious dividend payout plans. It is important to note that despite these risks, the company maintains stable forecasts for hydrocarbon production, signaling long-term stability.
However, despite the evident challenges, Shell remains committed to its long-term strategy focused on growth in the hydrocarbon and LNG sectors. In the coming quarters, the company will face the need to balance short-term risks and long-term investment goals. According to experts, despite current difficulties, the likelihood of major changes in corporate strategy remains low unless market conditions worsen further.
As we at Financial Media Guide see it, Shell will continue to be in the market spotlight, and its future steps regarding share buybacks and strategy adaptation will depend on changes in market conditions. It will be important to closely monitor the results of the fourth quarter and the company’s revised forecasts to accurately assess its long-term financial stability and ability to adapt to the rapidly changing energy landscape.
