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Shell warns Texas winter storm will cost it $200m

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Saleha Riaz
·2-min read
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Shell said its upstream total adjust earnings took a hit of about $40m, while its oil products and chemicals segments were impacted by up to $80m each. Photo: Getty Images
Shell said its upstream total adjust earnings took a hit of about $40m, while its oil products and chemicals segments were impacted by up to $80m each. Photo: Getty Images

Shell (RDSB.L) said the Texas winter storm earlier impacted its operations and is expected to have an aggregate adverse impact of up to $200m (£145m) on adjusted earnings for the first quarter of 2021, but its outlook still showed signs of recovery.

The company's shares were up roughly 0.6% on Wednesday morning.

Texas experienced a series of of back-to-back winter storms in February, plunging large areas of the state into subfreezing temperatures and overwhelming its electricity infrastructure. 

Shell said its upstream total adjust earnings took a hit of about $40m, while its oil products and chemicals segments were impacted by up to $80m each. 

But its upstream unit was also able to capture "the upside from the current commodity price environment."

Integrated gas was not quite as badly hit. Operational and net financial impact from the storm is expected to be limited in this segment, "as trading margins are offset by provisions due to related counterparty credit risk," the company said.

Shell's stock ticked up on Wednesday morning. Chart: Yahoo Finance
Shell's stock ticked up on Wednesday morning. Chart: Yahoo Finance

Integrated gas production is expected to be between 2,400 and 2,475 thousand barrels of oil equivalent per day, including 10 to 20 thousand barrels per day lower production due to the storm.

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"Q1 2021 is set to see a step up in both earnings and cashflow from Shell, although perhaps by slightly less than the stand-alone sensitivities would normally imply," Barclays (BARC.L) said in a note.

Overall, Barclays said this could be "the best quarter in a while for Shell and there are clear signs of progress, but the improvement is set to be more muted than we anticipated."

"Trading and optimisation results in integrated gas are also expected to be significantly below average with volumes across the divisions also typically below previous guidance. Partly offsetting this is lower depreciation guidance than we had anticipated. Working capital built in the quarter, but the cashflow impact of this is likely to be largely offset by disposals," the note explained.

Last month it was reported that Shell cut the pay of its CEO Ben van Beurden by more than 40% in 2020 after it plunged to a $20bn loss as a result of a steep drop in oil demand during the pandemic.

Shell also cut its dividend for the first time since World War 2, and said it was going to cut around 7,000 to 9,000 jobs across its global business.

WATCH: Shell CEO acknowledges 'painful year' after earnings miss