Shell's Q1 oil, gas output slides on year as price jump boost earnings

Shell reported weaker first-quarter oil and gas production May 5 and said it expects to see further declines in the current quarter on the back of lower seasonal gas demand and increased maintenance.

Posting its highest quarterly earnings in more than a decade, Shell's said upstream production segment saw volumes fall 14.6% on the year to 2.03 million boe/d in Q1, reflecting the impact of divestments mainly related to the US Permian shale business, and lower demand due to a milder winter, partly offset by the recovery from Hurricane Ida impact and lower maintenance.

In Shell's integrated gas business with producing assets linked to LNG projects, output fell 15.2% on the year to 896,000 boe/d due to higher maintenance at Pearl GTL and Prelude, partly offset by lower maintenance in Trinidad and Tobago. It said its LNG liquefaction volumes rose by 1% due to higher feedgas supply coupled with lower maintenance.

Combined, Shell's total oil and gas production fell 15% on the year to 2.96 million boe/d.

Like its European major rivals, the company has set targets to shift away from oil and gas production as it ramps up spending on renewables such as solar and wind power. The company, which says its oil production peaked in 2019, sold its interest in the Permian shale business in the US last year for $9.5 billion.

Looking ahead, Shell said it sees its upstream segment production average between 1.75 - 1.95 million boe/d in the second quarter of 2022, reflecting lower seasonal gas demand and increased scheduled maintenance mainly in the US Gulf of Mexico. It said its integrated gas production is expected to be approximately 910,000 - 960,000 boe/d. LNG liquefaction volumes are expected to be approximately 7.4 - 8 million mt.

Russia writedown

Shell also followed its Western energy major peers in taking a major hit over plans to exit its ventures in Russia over the war in Ukraine, announcing a $3.9 billion post-tax writedown in the quarter. Rival BP's was much bigger, however, flagging last week could writedown up to $25 billion over the planned sale of its near 20% stake in state oil giant Rosneft.

Shell has said it plans to withdraw from its ventures with state-run Gazprom and end its involvement in the Nord Stream 2 pipeline project; as well as exit its service station and lubricants operations in Russia.

Shell reiterated it has stopped all spot purchases of Russian crude, liquefied natural gas, and cargoes of refined products directly exported from Russia and will not renew long-term contracts for Russian oil.

Although Shell said it is still legally obliged to take delivery of crude bought under contracts that were signed before the invasion on Feb. 24, all of Shell's long-term deals for purchases of Russian crude will stop by the end of the year, except for two contracts with a small, independent Russian producer, it said.

It said all of Shell's contracts to purchase refined products exported from Russia will also end. Shell still has long-term contractual commitments for Russian LNG.

Earnings surge

Europe's biggest energy major and the last of its peers to report Q1 earnings, Shell posted adjusted earnings of $9.13 billion for the quarter -- almost triple from year-ago levels-- on sharply higher oil and gas prices, stronger refining margins, and higher trading results.

The result firmly beat analyst consensus estimates of $8.41 billion for the period.

"Today's results ... give us the confidence to plan future shareholder distributions and disciplined investments that will accelerate our strategy," CEO Ben van Beurden said in a statement.

Shell's chemicals and downstream oil division reported adjusted earnings of $1.17 billion for the quarter, up from $781 million a year earlier, as higher realized refining margins due to market volatility improved refinery utilization. Shell also said its trading results were "significantly higher" than Q4 2021.

Looking ahead, Shell said the utilization of both its refineries and chemicals plants in Q2 is expected to be impacted by scheduled turnarounds and maintenance.