Shell sees strong trading boost in Q1 2025 but stock slides after Nigerian exit and hedge loss fears

How is Shell navigating operational challenges in Q1 2025?

Shell plc has issued its quarterly update for Q1 2025, indicating a mixed performance across its business units. While the company forecasts strong trading and optimisation gains, it also faces headwinds from unplanned maintenance, adverse weather conditions in Australia, and the impact of completing its divestment from the Shell Petroleum Development Company (SPDC) in Nigeria.

Set to release its full Q1 2025 results on May 2, Shell outlines adjusted EBITDA, earnings, and tax guidance across business segments, while flagging non-cash hits from expiring hedge contracts and a sharp swing in working capital. The company also anticipates a temporary increase in net debt, driven by Nigeria-related financing and lease additions linked to the Pavilion Energy acquisition.

What are the main expectations for Shell’s Integrated Gas segment?

Shell expects a decline in LNG liquefaction volumes, forecasting between 6.4 million and 6.8 million tonnes in Q1 2025, compared with 7.1 million in Q4 2024. This drop is attributed to unplanned maintenance and cyclone activity in Australia. However, overall production in the segment is expected to slightly improve, ranging between 910,000 and 950,000 barrels of oil equivalent per day (boe/d).

Despite operational constraints, trading and optimisation results in the Integrated Gas segment are expected to remain steady relative to Q4. Shell anticipates a taxation charge between $0.7 billion and $1.0 billion and pre-tax depreciation ranging from $1.2 billion to $1.6 billion. Underlying operating expenses are projected at $0.9 billion to $1.1 billion.

How has the SPDC divestment impacted Shell’s upstream output?

Shell’s upstream production is expected to range between 1.79 million and 1.89 million boe/d, slightly down from 1.859 million in Q4 2024, reflecting the sale of SPDC in March 2025. The divestment aligns with Shell’s broader portfolio rationalisation strategy aimed at lowering risk exposure in Nigeria.

The company also expects exploration well write-offs of approximately $0.1 billion and a $0.2 billion contribution from joint ventures and associates. Taxation charges could range from $2.4 billion to $3.2 billion, while pre-tax depreciation is expected between $1.9 billion and $2.5 billion. Underlying opex is forecast at $2.1 billion to $2.7 billion.

The transaction’s near-term dilution in production is offset by Shell’s goal to concentrate on assets with lower emissions intensity and more stable regulatory environments.

What is affecting Shell’s Marketing segment performance?

In the Marketing segment, Shell anticipates a drop in sales volumes to a range of 2.5 to 2.9 million barrels per day, down from 2.795 million in Q4. This decline is attributed to a weaker contribution from the Sectors & Decarbonisation business, even as the combined Mobility and Lubricants units are expected to deliver stable results.

Shell forecasts taxation between $0.2 billion and $0.5 billion, with depreciation in the range of $0.5 billion to $0.7 billion. Underlying opex is projected at $2.3 billion to $2.7 billion.

While Marketing typically offers margin stability through consumer-facing operations, volatility in industrial demand and decarbonisation project timelines continues to introduce variability in returns.

Is Shell’s refining business showing signs of improvement?

The Chemicals and Products division is likely to benefit from a recovery in refining margins, which have risen to $6.2 per barrel from $5.5 per barrel in Q4 2024. However, chemicals margins are slightly down to $126 per tonne from $138. Refinery utilisation is set to improve to between 83% and 87%, while chemical plant utilisation could reach 79% to 83%.

Trading and optimisation activities in this segment are expected to be significantly higher, on par with Q2 and Q3 of 2024. Pre-tax depreciation is forecast between $0.8 billion and $1.0 billion. Tax outcomes are likely to vary from a credit of $0.2 billion to a charge of $0.3 billion.

The segment continues to be central to Shell’s refining-to-chemicals transition strategy, which includes asset modernisation and selective downsizing of carbon-intensive operations.

How is Shell’s renewables segment performing during the transition?

Shell’s Renewables and Energy Solutions segment remains under development, with adjusted earnings projected between a $0.3 billion loss and break-even. This follows a similar performance in Q4 2024. While revenues from electricity trading and project development remain volatile, the company continues to invest in scalable clean energy technologies such as hydrogen, EV charging, and carbon capture.

Shell’s net carbon intensity (NCI) strategy, which includes Scope 1, 2, and 3 emissions, continues to guide investment decisions even though the company has acknowledged that its operating outlook does not fully reflect its 2050 net-zero target.

What is the financial picture at the Shell Group level?

At the group level, Shell expects cash flow from operations to be influenced by tax payments ranging from $2.5 billion to $3.3 billion and working capital outflows of up to $5 billion. The latter includes approximately $0.5 billion in deferred German Mineral Oil Tax payments. Derivative impacts could range between a $2 billion outflow and a $2 billion inflow.

Shell also expects a $1.5 billion increase in net debt, largely due to loan facilities issued during the SPDC divestment and lease additions from the Pavilion Energy acquisition. Corporate adjusted earnings are forecast to come in between a $0.6 billion and $0.4 billion loss.

How is Shell’s stock performing and what’s the market sentiment?

Shell plc (NYSE: SHEL) has recently experienced a decline in share price, falling 4.28% on April 9, 2025, to close at £22.92. This drop occurred amid broader market weakness, with the FTSE 100 Index down 2.92% the same day. Shell’s current share price represents a 22.61% decline from its 52-week high of £29.61 set in May 2024.

Despite this recent pressure, analyst sentiment remains broadly optimistic. Shell holds a consensus “Buy” rating, with an average 12-month price target of $80.70, suggesting a potential upside of over 31% from the current price of $59.78. Analysts cite Shell’s shareholder return strategy, including a plan to repurchase up to 40% of outstanding shares over the next five years, as a key driver of long-term value.

However, some market participants remain cautious. Elliott Investment Management, a U.S.-based activist hedge fund, recently disclosed an £850 million short position against Shell—equivalent to 0.5% of the company’s stock. This move highlights ongoing concerns about Shell’s valuation and strategic clarity compared to U.S. energy peers.

For investors, the sentiment around Shell remains nuanced. While strong trading gains and refining margins offer near-term upside, concerns around LNG volumes, working capital strain, and geopolitical exposure persist.

Sentiment Analysis: The overall investment sentiment is cautiously positive. Shell’s diversified operations and disciplined capital returns support a “Hold” recommendation. Investors are advised to monitor upcoming earnings and developments related to LNG performance, working capital recovery, and the company’s energy transition efforts for future entry or exit points.