Shell Hit by $600 Million Charge as Gas Recovers Oil Output Increases and Shareholders Eye Buyback Risks

Shell is set to take a substantial noncash impairment of $600 million dollars for the third quarter after abandoning the construction of what would have been one of Europe’s largest biofuels plants. The charge comes on top of an 800 million dollar hit previously booked for the Rotterdam facility and includes remediation costs for a shelved project in Amsterdam intended for producing sustainable aviation fuel and renewable diesel. The decision to terminate the Rotterdam construction arose after Shell determined the plant would be insufficiently competitive within the global energy landscape.

Alongside this impairment, Shell anticipates a cash outflow of between 200 and 400 million dollars related to a reduced share in a licence from the Tupi oil field in Brazil, which may manifest in the coming year. Despite these setbacks, Shell’s gas trading arm is showing marked improvement. The company expects significantly stronger returns compared to the turbulence experienced in the previous quarter, which was exacerbated by price volatility due to tariff changes and escalating geopolitics in the Middle East.

This turnaround follows Shell’s July warning that trading performance would come in lower, reducing its upper guidance on integrated gas output. Now, confidence is returning as two major oil and gas assets, Whale in the Gulf of Mexico and Mero in Brazil, have amplified their production levels. Output in the third quarter is forecasted between 1.79 million and 1.89 million barrels of oil equivalent per day, up from 1.73 million barrels in the second quarter, marking an improvement in the company’s upstream output.

Market responses have reflected Shell’s operational resilience. RBC Capital has raised its adjusted profit forecast for the September quarter from 4.98 billion to 5.19 billion dollars. The valuation of Shell, however, remains lower than that of its US counterparts, Chevron and Exxon Mobil, as Chief Executive Wael Sawan nears the close of a ten quarter drive to boost free cash flow, streamline costs and exit noncore assets in a bid to lift the company’s market standing.

Investors are now closely monitoring the upcoming third quarter update, slated for 30 October. The durability of Shell’s shareholder returns is under debate amid projections that the price of oil could dip as low as 50 dollars per barrel if a global supply glut materialises. Opec plus has offered some support, recently voting to raise output by 137000 barrels daily from November, nudging Brent crude just above the 65 dollar threshold.

If oil maintains a floor around 60 dollars per barrel, analysts such as Ashley Kelty from Panmure Liberum believe Shell can continue to reduce its debt pile and safeguard its dividend. Nevertheless, the company may be required to pare back share buybacks should sustained low prices prevail. Shares responded positively, climbing by 44.6 pence or 1.6 per cent to £27.82 during morning trading in London.