Shell Downgraded by RBC on Reserve Concerns Following Earnings Miss

RBC Capital Markets has downgraded Shell to Sector Perform from Outperform, expressing significant concerns regarding the energy major’s resource depth following what the bank characterised as an unusual double miss on earnings.

The investment bank reduced its price target to 3,200 pence from 3,600 pence, representing approximately 12 per cent upside from current levels. Analyst Biraj Borkhataria noted that Shell delivered a weak trading update that necessitated earnings downgrades, subsequently missing expectations on results day itself. This pattern represents an uncommon occurrence for the company outside of typically softer fourth quarter periods.

Central to RBC’s downgrade is Shell’s declining reserve life, which experienced a material reduction in 2025. The company now maintains just nine years of reserve life, significantly trailing TotalEnergies at approximately 13 years and ExxonMobil at roughly 12 years. This disparity is anticipated to widen further once 2025 figures are released, as Shell’s divestment of its Canadian oil sands position eliminates assets characterised by high reserve life indices.

Management indicated that the 2030 liquids gap has been effectively resolved through smaller inorganic activity, providing the company with capacity to address a 2035 shortfall estimated at approximately the volumetric equivalent of Galp. RBC cautioned, however, that absent near-term mergers and acquisitions, concerns over longevity are likely to persist, particularly as the distribution component of the investment thesis is increasingly funded by the balance sheet.

The bank also emphasised execution risk associated with potential acquisitions. Despite Shell reducing its share count by more than 25 per cent since the pandemic, its valuation multiple has not expanded relative to the sector, potentially compelling the company to deploy a combination of cash and equity to complete any substantial transaction.

RBC trimmed its 2026 and 2027 earnings estimates by 9 per cent and 3 per cent, respectively, driven partly by a lower oil price assumption of $60 per barrel for Brent crude in 2026. Borkhataria concluded that the bank sees superior risk-reward opportunities elsewhere in the sector.