Shell PLC (LON: SHEL)

Shell’s Q2 2025 financial performance reflected a challenging commodity price environment and lower trading margins. While income attributable to shareholders remained relatively stable at $3.6 billion, this masked underlying pressure on core business metrics. Adjusted Earnings declined significantly by 24% to $4.3 billion, primarily driven by lower trading and optimization margins across multiple segments and reduced realized liquids and gas prices.

Adjusted EBITDA decreased 13% to $13.3 billion, reflecting the same fundamental pressures affecting adjusted earnings. The company’s cash flow from operating activities was robust at $11.9 billion, primarily driven by the strong EBITDA performance, though this was partially offset by tax payments of $3.4 billion.

Free cash flow of $6.5 billion represented a 36% decline from Q2 2024’s $10.2 billion, primarily due to lower earnings and higher capital expenditures of $5.8 billion. Despite the decline, this level of cash generation demonstrates Shell’s resilient business model and ability to fund both growth investments and shareholder returns.

Return on Average Capital Employed (ROACE) decreased to 9.4% from 12.8% in Q2 2024, reflecting the impact of lower earnings on capital efficiency. However, this remains within Shell’s target range and above the company’s cost of capital. Net debt increased to $43.2 billion from $38.3 billion in Q2 2024, resulting in gearing of 19.1%, still well within the company’s target range of 20-30%.

Integrated Gas earnings declined 30% to $1.7 billion due to lower contributions from trading and optimization activities and reduced realized prices. LNG liquefaction volumes increased 2% to 6.7 million tonnes, benefiting from ramp-up in Australia following maintenance constraints in Q1. Total oil and gas production in the segment decreased 2% mainly due to planned maintenance across the portfolio.

Upstream delivered adjusted earnings of $1.7 billion, down 26% from the prior year, primarily reflecting lower realized liquids and gas prices. The segment benefited from $350 million in gains from asset disposals and continued to progress major projects including the start of production at the Alexandre de Gusmão FPSO in Brazil’s Mero field.

Marketing was the standout performer with adjusted earnings increasing 33% to $1.2 billion, driven by higher unit margins particularly in the Mobility business and seasonal volume effects. This strong performance helped offset weakness in other segments and demonstrates the resilience of Shell’s integrated model.

Chemicals and Products faced significant headwinds with adjusted earnings declining 74% to $118 million, primarily due to lower refining margins and reduced trading optimization opportunities. The segment continues to face structural challenges in the current market environment.

Renewables and Energy Solutions posted negative adjusted earnings of $9 million, an improvement from -$187 million in Q2 2024. While most activities in this segment remain loss-making, this represents progress toward profitability as the business scales and matures.

Shell’s total oil and gas production available for sale decreased to 2,682 thousand boe/d in Q2 2025 from 2,817 thousand boe/d in Q2 2024, reflecting the company’s strategic portfolio optimization and planned maintenance activities.

Key Operational Highlights

• LNG Canada First Cargo: In June 2025, the first cargo of LNG departed from the LNG Canada facility, marking a significant milestone for Shell’s 40% interest in this 14 mtpa capacity project
• Whale Production Start: The Shell-operated Whale floating production facility in the Gulf of America began production, with Shell holding a 60% operating interest
• Mero Field Development: The Alexandre de Gusmão FPSO started production in the Santos Basin offshore Brazil, where Shell Brasil holds a 19.3% partnership interest
• Portfolio Optimization: Completed the sale of SPDC in Nigeria to Renaissance, as part of Shell’s strategy to focus on higher-value assets

The company’s maintenance programs remain critical for long-term reliability, with higher planned maintenance activities contributing to the production decline but ensuring asset integrity and optimization of long-term production capacity.

Shell’s integrated gas business maintained strong LNG sales volumes of 17.8 million tonnes, up 8% from the prior year, demonstrating the company’s leading position in the global LNG market despite operational challenges.

Shell’s capital allocation strategy remained focused on delivering sustainable returns to shareholders while investing in profitable growth opportunities:

Cash Capital Expenditure

Cash capital expenditure increased to $5.8 billion in Q2 2025, up from $4.7 billion in Q2 2024, reflecting continued investment in high-return projects. The company reaffirmed its full-year 2025 capex guidance of $20-22 billion, positioning Shell for long-term growth while maintaining capital discipline.

Shareholder Returns

• Share Buybacks: Completed $3.5 billion in share repurchases and announced a new $3.5 billion program expected to be completed by Q3 2025 results
• Dividends: Maintained quarterly dividend of $0.3580 per share, representing a 4% increase from Q2 2024
• Total Distributions: $5.7 billion in total shareholder distributions for the quarter, comprising $3.5 billion in buybacks and $2.1 billion in dividends

Balance Sheet Strength

Net debt increased to $43.2 billion, resulting in gearing of 19.1%, still comfortably within Shell’s 20-30% target range. The company maintains strong liquidity and financial flexibility to pursue growth opportunities while continuing robust shareholder returns.

Shell’s disciplined approach to capital allocation ensures the company can navigate commodity price volatility while delivering consistent returns to shareholders and funding future growth.

Shell continues to execute on its strategy of delivering more value with less emissions, focusing on high-return investments across its integrated portfolio:

Growth Investments

• LNG Expansion: First cargo from LNG Canada represents Shell’s continued investment in lower-carbon LNG, with the facility providing access to Asian markets
• Deep Water Development: Final Investment Decision on Gato do Mato project in Brazil’s Santos Basin, where Shell operates with a 50% interest
• Gulf of America: Increased working interest in the Ursa platform from 45.39% to 61.35%, strengthening Shell’s position in this prolific basin

Portfolio Optimization

Shell delivered $3.9 billion in structural cost reductions since 2022, with $0.8 billion achieved in the first half of 2025. This performance demonstrates management’s focus on efficiency and simplification across the organization.

Energy Transition

While traditional energy businesses faced headwinds, Shell’s Renewables and Energy Solutions segment showed improvement with reduced losses. The company continues to invest selectively in profitable energy transition opportunities, with renewable power generation capacity reaching 3.9 GW in operation.

The completion of the RISEC Holdings acquisition adds 609 MW of combined-cycle gas turbine capacity in Rhode Island, supporting Shell’s integrated power and gas strategy.

Shell provided the following guidance for Q3 2025:

• Integrated Gas production: 910-970 thousand boe/d
• LNG liquefaction volumes: 6.7-7.3 million tonnes
• Upstream production: 1,700-1,900 thousand boe/d
• Marketing sales volumes: 2,600-3,100 thousand b/d
• Refinery utilization: 88-96%
• Chemicals manufacturing plant utilization: 78-86%
• Corporate Adjusted Earnings: -$500 to -$700 million net expense

The outlook reflects Shell’s expectation of continued operational performance while navigating market volatility. The company’s full-year capex guidance of $20-22 billion remains unchanged, supporting both maintenance of existing assets and investment in growth opportunities.

Management continues to focus on delivering sustainable cash flows while adapting to changing market conditions and maintaining flexibility in capital allocation.