Shell on Thursday said it expects to book impairment reversals in the range of $3.5 billion to $4.5 billion, due to changes in its commodity price outlook.
It expects a Brent price of $80 per share in 2023, before $70 in 2024 and 2025.
The price of a barrel of Brent oil has risen nearly 30% since the start of 2022.
‘In the second quarter 2022, Shell has revised its mid and long-term oil and gas commodity prices reflecting the current macroeconomic environment as well as updated energy market demand and supply fundamentals. This resulted in a review of Shell’s Upstream and Integrated Gas previously impaired assets,’ the company explained.
The statement came in a pre-second quarter results update from the oil major.
Shell also said it expects its indicative refining margin to improve to $28.04 a barrel in the second quarter, from $10.23 in the first.
This will hand a boost between $800 million and $1.20 billion to its Products division, a provider of lubricants, in the second quarter.
Shell shares were up 2.1% at 2,013.00 pence early Thursday.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: up 0.8% at 7,162.51
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Hang Seng: down 0.1% at 21,564.75
Nikkei 225: closed up 1.5% at 26,490.53
S&P/ASX 200: closed up 0.8% at 6,648.00
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DJIA: closed up 69.86 points, or 0.2%, at 31,037.68
S&P 500: closed up 13.69 points, or 0.4%, at 3,845.08
Nasdaq Composite: closed up 39.62 points, or 0.4%, at 11,361.85
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EUR: firm at $1.0196 ($1.0192)
GBP: up at $1.1958 ($1.1917)
USD: up at JP¥135.84 (JP¥135.56)
Gold: up at $1,743.10 per ounce ($1,738.77)
Oil (Brent): up at $101.08 a barrel ($99.67)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Thursday’s key economic events still to come
13:30 CEST EU ECB monetary policy meeting minutes
08:15 EDT US ADP National Employment Report
08:30 EDT US international trade in goods & services
08:30 EDT US jobless claims
11:00 EDT US EIA weekly petroleum status report
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Northern Ireland Secretary Brandon Lewis has resigned from the Cabinet, piling further pressure on the embattled UK prime minister. Lewis told Boris Johnson the government requires ‘honesty, integrity and mutual respect’ and it is ‘now past the point of no return’, His resignation early on Thursday came just hours after former Johnson ally Suella Braverman, the Attorney General, also publicly urged the prime minister to go. Johnson rejected calls to quit on Wednesday and dramatically sacked Cabinet rival Michael Gove. He was later hit with the departure of a third Cabinet minister – Welsh Secretary Simon Hart. Johnson met ministers in No 10 on Wednesday, where he was told he has lost the confidence of the Conservative Party and should not continue in office – but refused to listen. Gove is thought to have told the prime minister on Wednesday morning that it is time for him to quit. That was followed by a delegation of Cabinet ministers going to Downing Street to tell Johnson he should stand down after losing the trust of his MPs. They included Home Secretary Priti Patel, Business Secretary Kwasi Kwarteng, Transport Secretary Grant Shapps, Northern Ireland Secretary Lewis and Welsh Secretary Hart.
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UK house price growth accelerated in June, defying expectations that the market will cool as consumers face pressure from rampant inflation, figures. According to Halifax, UK house prices rose 13% yearly in June, the strongest growth since late 2004, accelerating from an 11% rise in May. Monthly, prices rose 1.8%, hitting £294,845, another record high. House prices have now risen for 12 months on-the-bounce, Halifax noted. In May, house prices had risen 1.2%. ‘The UK housing market defied any expectations of a slowdown, with average property prices up 1.8% in June, the biggest monthly rise since early 2007. This means house prices have now risen every month over the last year, and are up by 6.8% or £18,849 in cash terms so far in 2022,’ Halifax Managing Director Russell Galley commented.
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US Federal Reserve policymakers reaffirmed their commitment to combating elevated levels of inflation even at the risk of damaging economic growth, according to the central bank’s meeting minutes on Wednesday. At its most recent meeting in June, the Fed enacted a 75 basis points interest rate hike, taking the federal funds rate to a range of 1.5% to 1.75%. It was the first hike of that magnitude since November 1994. Notably, FOMC members highlighted that ‘inflation pressures had yet to show signs of abating,’ which meant rising prices could be ‘more persistent than they had previously anticipated,’ As such, rate-setters at the Fed said the July meeting would likely see another substantially sharp move in interest rates. ‘Participants judged that an increase of 50 or 75 basis points would likely be appropriate at the next meeting,’ according to the minutes.
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BROKER RATING CHANGES
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Berenberg cuts Rio Tinto to ’sell’ (hold) - price target 4,200 (6,500) pence
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COMPANIES - FTSE 100
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Persimmon said its half-year revenue and legal completions were lower, though forward sales are on the up and it expects to report an improved gross margin for the six months to June 30. Its operating margin will take a hit, however. Revenue was down 8.2% to £1.69 billion in the first half of 2022 from £1.84 billion a year earlier. Completions have fallen to 6,652 from 7,406. Completions were below expectations due to ‘further delays in the planning system and material and labour shortages’. However, the average selling price was 4.0% higher at £245,600. Forward sales were 2.7% higher at £1.87 billion from £1.82 billion. ‘Rising energy prices, supply constraints on certain materials and increased labour costs are driving upward pressure on total build costs. Currently, house price inflation is continuing to offset these increases. As a result, we expect to deliver a housing gross margin that is slightly ahead year on year, although, the lower number of completions will result in a slight fall in operating margin reflecting the reduced efficiency of the group’s overhead recovery rates. Despite this, we anticipate the group’s profit at the half year to be modestly above our expectations,’ the company said.
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Entain nudged annual guidance lower. For 2022, it now expects flat online net gaming revenue, excluding impacts from the upcoming UK Gambling Act Review. It had previously forecast mid to high single digit. Wider group net gaming revenue rose 18% in the first half of 2022 and was up 8% in the second quarter alone. Online NGR was down 7% in both the first half and second quarter. ‘A weaker macro-economic environment is reducing customers’ rate of spend, moderating overall Online growth versus our previous expectations,’ Entain cautioned.
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International Consolidated Airline’s British Airways has announced it will axe another 10,300 short-haul flights until the end of October. The move takes the percentage of cancellations across the airline to a total of 13% this summer. BA has been one of the worst affected carriers in terms of schedule disruption in recent months as the aviation industry battles increased demand and staff shortages. In a statement the airline said it was ‘not where we wanted to be’ but believed the cuts were ‘the right thing to do for our customers and colleagues’. It said: ‘The whole aviation industry continues to face into significant challenges and we’re completely focused on building resilience into our operation to give customers the certainty they deserve.’
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COMPANIES - FTSE 250
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Drax Group late Wednesday said it has raised its profit expectations for 2022, following a request from the UK government for owners of legacy coal-fired generation assets to extend their lives up to March 2023. As a result, the Yorkshire-based power generation firm has partnered with electricity systems operator National Grid, to have Drax’s two coal-fired units at Drax Power Station to remain available to provide a winter contingency service for the UK power system from October until the end of March. The units will not generate commercially for the duration of the agreement, however Drax will be paid a fee for the service and compensated for costs incurred, including coal costs. Drax said the request for the government is in response to increased pressure on European gas markets and concerns about electricity security of supply in the UK in the winter. As a result of the new contract and an optimisation of Drax’s biomass generation, the company now expects its annual adjusted earnings before interest, tax, depreciation and amortisation to be slightly above the range of consensus expectations.
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Baltic Classifieds Group said annual revenue topped initial public offering guidance, rising 21% to €51.0 million in the year to April 30. Pretax profit rose 38% to €2.45 billion from €1.78 billion. The operator of online classified ad portals declared a 1.4 cents final dividend. In addition, it plans to return cash to shareholders through a buyback. ‘We expect the appropriate authorities to be in place following the AGM for us to begin buying back our shares. The board will consider the allocation of excess cash towards reducing gross debt and to the share buyback programme at that time,’ Baltic explained.
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Watches of Switzerland reported a record performance. Watches of Switzerland said revenue in the year ended May 1 jumped 37% to £1.24 billion from £905.1 million. Pretax profit surged 98% to £126.2 million from £63.7 million. The luxury watch seller said it has started the new year with ‘strong momentum’, as Covid-19 disruption is largely behind it. It expects revenue between £1.45 billion and £1.50 billion in the financial year ahead, a moderation from financial 2022’s growth.
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Currys posted a slight revenue fall in the year ended April 30 but profit jumped. Revenue declined 1.9% to £10.14 billion from £10.34 billion. Pretax profit, however, jumped to £126 million from £33 million. ‘Our financial results are encouraging, particularly as they were achieved during a year of significant change, uncertainty, and disruption. Group sales were flat YoY on a currency neutral basis, as growth in our International business was offset by the decline in UK & Ireland,’ Currys said. It declared a 2.15p final payout, taking its yearly dividend to 3.15p, up 5.0%.
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COMPANIES - SMALL CAP
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Travel firm Jet2 reported a surge in full-year revenue but widened loss, as it cautioned that its performance in the year ahead depends on the aviation market returning to stability. Revenue for the financial year to March 31 jumped to £1.23 billion from the Covid-hit prior year result of £395.4 million. Pretax loss widened to £388.8 million from £341.3 million. The firm said it has been hit by broader disruption across the travel sector despite investing ‘well ahead’ of the summer 22 season. ‘Many suppliers have been woefully ill-prepared and poorly resourced for the volume of customers they could reasonably expect, inexcusable, bearing in mind our flights have been on sale for many months and our load factors are quite normal,’ the company said. As such, its performance in the 2023 financial year depends on how fast the broader aviation sector returns to ‘some level of stability’.
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COMPANIES - GLOBAL
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Samsung Electronics expects operating profit in the second quarter to rise 11%, the South Korean tech giant said in a statement Thursday, despite ongoing global supply chain woes. The world’s biggest smartphone maker forecast 2022 second-quarter operating profit of about ₩14 trillion, around $10.7 billion, up from ₩12.57 trillion in the same quarter last year. It expects consolidated sales in the quarter to be in the region of ₩77 trillion, increased from ₩63.67 trillion a year before.
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French oil and gas firm TotalEnergies said Wednesday it had pulled out of a Russian oil project. Russian oil firm Zarubezhneft will take over its remaining 20% stake in the Kharyaga project in the Arctic pending approval by Russian authorities. No information about the financial terms of the transaction were provided. TotalEnergies had already ceded a 20% stake in the project and the role of operator to Zarubezhneft. The Russian firm said on its website the Kharyaga oil project has produced more than 20 million tonnes of oil since starting operations in 1999 and had generated more than $4 billion in revenue for the Russian government. Following Russia’s invasion of Ukraine, TotalEnergies announced it would reduce its activity in Russia and booked a $4.1 billion impairment charge on one of its key gas projects in the country.
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Thursday’s shareholder meetings
C&C Group PLC - AGM
Distil PLC - AGM
Emmerson PLC - AGM
Faron Pharmaceuticals Ltd - GM re issuance of shares
FD Technologies PLC - AGM
Great Portland Estates PLC - AGM
Greencare Capital PLC - AGM
J Sainsbury PLC - AGM
JPMorgan European Growth & Income PLC - AGM
Land Securities Group PLC - AGM
Likewise Group PLC - GM re approval of waiver by takeover/merger panel
N Brown Group PLC - AGM
Octopus Apollo VCT PLC - AGM
Peel Hunt Ltd - AGM
Pets At Home Group PLC - AGM
Puma VCT 13 PLC - AGM
Severn Trent PLC - AGM
TomCo Energy PLC - AGM
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