May 11, 2021 [Argus] – Shell swung back to profit in the first quarter of the year, as oil and LNG prices, downstream margins, divestment proceeds and the contribution from its oil trading business all rose from the previous three months.

But it warned of “significant uncertainty” arising from Covid-19, and expects related negative effects on demand for oil, gas and related products.

Shell made a profit, excluding inventory effects, of $4.35bn in the January-March period, compared with a write-offs driven loss of $4.48bn in the previous three months and a profit of $2.86bn in the first quarter of 2020. Its pre-pandemic, first quarter 2019 profit was $5.29bn.

Its oil and gas output averaged 3.489mn b/d of oil equivalent (boe/d) in the first quarter, down from 3.719mn boe/d a year earlier mainly because of higher maintenance activity and divestments. Production was higher by 4pc than in the fourth quarter of 2020. Shell sees its second-quarter output in a 3.03mn-3.29mn boe/d range, again affected by maintenance activities and divestments as well as by lower seasonal gas demand.

Realised refining and marketing margins were weaker in the first quarter of this year than a year earlier. Refinery runs decreased to 1.751mn b/d in the January-March period from 1.940mn b/d in the previous three months and from 2.397mn b/d a year earlier. This put utilisation at 72pc, down from 81pc a year earlier, with throughput affected by the Texas winter storm, lower demand and economic optimisation. Shell sees its refinery utilisation at 73-81pc in the current quarter.

Shell’s net debt came down to $71.3bn at the end of March from $75.4bn three months earlier, thanks to higher cash flow from operations and a rise in divestment proceeds to $3.4bn from around $200mn in the previous three months. Its net debt gearing declined to 29.9pc from 32.2pc over the same period.

“Shell has made a strong start to 2021, generating over $8bn of cash in the quarter,” chief executive Ben van Beurden said. “We have reduced net debt by more than $4bn this quarter, progressing towards the $65bn milestone to increase shareholder distributions” to 20-30pc of its operating cash flow.

Shell confirmed a dividend increase of around 4pc compared with the previous quarter.

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