Shell First Quarter 2020 Update Note

Source: 3/31/2020, Location: Europe

This is an update to the first quarter 2020 outlook provided in the fourth quarter results announcement on January 30, 2020. The impacts presented here may vary from the actual results and are subject to finalisation of the first quarter 2020 results.

Unless otherwise indicated, presented earnings impacts relate to earnings on a current cost of supplies basis, attributable to shareholders, excluding identified items.

Integrated Gas
- Production is expected to be between 920 and 970 thousand barrels of oil equivalent per day, this includes the additional volumes from the Egypt offshore assets that were previously reported in the Upstream segment.
- LNG liquefaction volumes are expected to be between 8.8 and 9.2 million tonnes.
- Dividend payments from joint ventures and associates are expected to be lower than in other quarters, as is typically the case in the first quarter.
- Trading and optimization results are expected to be average and approximately in line with the fourth quarter 2019.
- More than 90% of our term contracts for LNG sales in 2019 were oil price linked with a price-lag of typically 3-6 months.

CFFO in Integrated Gas can be impacted by margining resulting from movements in the forward commodity curves. At the time of issue, we expect margining inflows not significantly different from those received in the fourth quarter 2019.

- Production is expected to be between 2,650 and 2,720 thousand barrels of oil equivalent per day, this includes the impact from the transfer of the Egypt offshore assets to the Integrated Gas segment and the transfer of Oil Sands to the Oil Products segment.
- Upstream margins are impacted by the weak macro environment. Upstream results, excluding identified items, are also negatively impacted by the effects of a weak Brazilian Real on taxation, a non-cash item.

Oil Products
- Refinery utilisation is expected to be between 80% and 84% with availability expected to be between 93% and 96%.
- Refining margins are expected to be weaker compared with the fourth quarter 2019.
- Oil Products sales volumes are expected to be between 6,000 and 7,000 thousand barrels per day.
- Marketing margins in the first quarter are expected to remain strong, as the impact on demand from COVID-19 is not expected to be significant at the Shell Group level in the first quarter.
- A material working capital release is expected largely driven by the change in quarter-end prices impacting inventory values.
- CFFO excluding working capital movements is expected to be impacted by the higher cash cost of sales.
- In February, we completed the divestment of the Martinez refinery.

- Chemicals manufacturing plant utilisation is expected to be between 82% and 87% and availability is expected to be between 94% and 97%.
- Chemicals sales volumes are expected to be between 3,700 and 4,000 thousand tonnes.
- Chemicals cracker and intermediate margins are expected to improve compared to the fourth quarter 2019.

- Corporate segment earnings excluding identified items are expected to be a net expense at the lower end of the $800 to 875 million range for the first quarter. This excludes the impact of currency exchange rate effects.

- Based on changes to our oil price outlook for 2020, post-tax impairment charges in the range of $400-800 million are expected for the first quarter. Impairment charges are reported as identified items.
- As per previous disclosures, CFFO price sensitivity at Shell Group level is still estimated to be $6 billion per annum for each $10 per barrel Brent price movement.
- Note that this price sensitivity is indicative and is most applicable to smaller price changes than we currently witness as well as in relation to the full-year results.
- We will replace Oil Products and Chemicals plant availability with utilisation metrics going forward to improve transparency on refinery and chemicals production volumes. Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity.
- As a result of COVID-19, we have seen and expect significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products. Furthermore, recent global developments and uncertainty in oil supply have caused further volatility in commodity markets. The impact of the dynamically evolving business environment on first quarter results is being primarily reflected in March with a relatively minor impact in the first two months. We expect to provide further updates about the impact on our outlook in the first quarter results announcement.
- Shellís liquidity remains strong. Reflecting the Shell Groupís prudent balance sheet policy and to enhance financial flexibility, Shell has a new $12 billion revolving credit facility commitment. This is in addition to the $10 billion credit facility signed in December 2019. Together with cash and cash equivalents of circa $20 billion, available liquidity will rise from $30 billion to more than $40 billion. In addition, the Shell Group has access to extensive commercial paper programmes.

The consensus collection for quarterly earnings and CFFO excluding working capital movements, managed by VARA research, is scheduled to be opened for submission on April 8, 2020, closed on April 22, 2020, and made public on April 23, 2020.

Note the change compared with previous quarters where we have published CFFO including working capital movements.

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