Shell Warns of Lower Q4 Profits Due to Tax Changes and Challenging Trading Conditions

Shell Revises Q4 2025 Forecast, Anticipates Lower Earnings

Shell has released an updated outlook for the fourth quarter of 2025, indicating that earnings are expected to decline across multiple divisions. This is attributed to tax adjustments, less favorable trading conditions, and reduced downstream margins. The company plans to announce its final results on February 5, 2026.

Although Shell’s main upstream and integrated gas operations are maintaining steady production levels, the company foresees a decrease in both adjusted earnings and cash flow at the group level compared to previous quarters.

Segment Performance Highlights

• Integrated Gas: Production is projected between 930,000 and 970,000 barrels of oil equivalent per day (kboe/d) for Q4, mirroring Q3 figures. LNG output is expected to reach 7.5 to 7.9 million tonnes, supported by consistent asset performance. Trading and optimization activities are anticipated to remain stable compared to the previous quarter.
• Upstream: Output is forecast at 1.84 to 1.94 million boe/d, reflecting the addition of the Adura joint venture in the UK. Operating costs and depreciation are expected to align with historical averages, while the upstream tax burden is set to decrease slightly from Q3.
• Marketing: Sales volumes are predicted to drop seasonally to between 2.65 and 2.75 million barrels per day, down from 2.82 million in Q3. Adjusted earnings for Marketing are likely to fall below Q4 2024 levels, mainly due to a non-cash deferred tax adjustment related to a joint venture.
• Chemicals and Products: This segment is expected to perform the weakest, with chemicals adjusted earnings anticipated to show a “significant loss” largely due to another deferred tax adjustment in a joint venture. Segment earnings are projected to remain below break-even for the quarter.
• Margins: Refining margins are expected to increase to approximately $14 per barrel, up from $12 in Q3. However, chemicals margins are forecast to decline to $140 per tonne from $160. Trading and optimization in this segment are set to be much lower than in the previous quarter.
• Oil Sands: Following a Canadian oil sands asset swap, Shell anticipates oil sands production of about 20,000 boe/d in Q4. This will be accompanied by a decrease in Chemicals and Products adjusted earnings, partly offset by reduced non-controlling interests at the group level.
• Renewables and Energy Solutions: Adjusted earnings are expected to range from a $200 million loss to a $200 million gain, highlighting ongoing volatility in Shell’s lower-carbon business. Corporate adjusted earnings are projected to show a loss between $400 million and $600 million.

Cash Flow and Taxation Insights

Shell reports that cash flow from operations, excluding working capital, will reflect an estimated $1.5 billion outflow due to the timing of payments for German emissions certificates under the BEHG program. Working capital changes are expected to include the usual $1.2 billion payment for German mineral oil taxes, with total working capital movements ranging from a $3 billion outflow to a $1 billion inflow.

The company also noted that the quarterly tax charge includes an annual non-cash reassessment of deferred tax assets. The combined deferred tax impact on joint ventures in Marketing and Chemicals is estimated at around $300 million.

Industry Context and Outlook

This update highlights the challenging earnings landscape for major oil companies, as cycles in refining and chemicals weaken and trading conditions normalize after previous periods of high volatility. While Shell continues to benefit from its scale in LNG and upstream production, its downstream and chemicals businesses remain vulnerable to shrinking margins and accounting fluctuations.

Consensus forecasts for Shell’s Q4 results, compiled by Vara Research, are expected to be released on January 28, 2026.

By Charles Kennedy for Oilprice.com