Shell Warns Oil-Price Gains Partly Offset by Hit From Texas Freeze -- Update

By Sarah McFarlane 

LONDON -- Royal Dutch Shell PLC said gains it made from higher oil prices in the first quarter would be partly offset by disruption related to the winter storm in Texas, knocking the energy giant's recovery from the pandemic.

The company said Wednesday that the cold snap had hurt its production, refining and chemicals operations in the state, and would reduce earnings by around $200 million.

The unusually cold weather left millions of Texans without power and resulted in outages at refineries and chemical plants, disrupted pipeline flows, and froze oil and natural-gas wells.

Despite the disruption, Shell and other big oil companies are looking to mount a recovery this year after reporting some of their worst results on record for 2020. Covid-19 lockdowns sapped demand for oil, sending prices lower, prompting Shell and its peers to reduce costs, shrink workforces and cut dividends.

"In actual results the turning point will more likely be the second quarter," said Jason Kenney, an analyst at Spanish bank Santander, adding that energy companies' profitability should continue to improve in the second half of the year given cost cutting and the higher oil prices.

The benchmark Brent crude price has risen around 20% since the start of the year, boosted by a recovery in oil demand, although demand isn't yet back at pre-pandemic levels with lockdowns continuing in some parts of the world.

Earlier this week, BP PLC said higher oil prices, strong trading results and income from asset sales had helped it hit its debt-reduction target early, signaling a recovery from the pandemic was within sight.

However, Shell said it expected mixed trading results for the quarter. Trading results aren't dependent on the direction of energy prices, and rather can rise or fall as a result of price volatility based on how successfully traders exploit price changes.

Liquefied-natural gas prices were particularly volatile early in the year, when cold weather, combined with outages at some plants, pushed prices to record highs. Shell said the price volatility had a limited impact on its earnings.

Shell said its refining and chemicals margins improved in the first three months of the year compared with the fourth quarter last year, but warned that activity at plants was lower than it had projected in February.

"Operationally, the business appears to be performing below expectations, with oil products and chemical utilization and volumes clearly below guidance," said Biraj Borkhataria, an analyst at RBC Capital Markets. The exception was integrated gas production, which was higher than the previous guidance, he added.

Shell's shares were 0.6% higher in morning trading in London.

Write to Sarah McFarlane at [e-mail]

(END) Dow Jones Newswires

April 07, 2021 07:29 ET (11:29 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.