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# Shell plc (SHEL): Business, Risks and Management Discussion, Second Quarter 2026 Shell reports in US dollars, so the amounts below are as the company reports them. Two amounts Shell gave in other currencies appear with US-dollar equivalents, labelled where they appear. The Canadian-dollar cash part of the ARC Resources price is converted at the closing rate on the day the deal completed. For the Brazilian-real capital injection into Raizen, the US-dollar figure is Shell's own. Each Shell American Depositary Share (ADS) represents two ordinary shares. Per-share amounts are per ordinary share unless marked per ADS. Sources: the Annual Report on Form 20-F for the fiscal year ended December 31, 2025 (accession 0001628280-26-017024, filed March 12, 2026); the Unaudited Condensed Interim Financial Report for the three and six months ended June 30, 2026, furnished on Form 6-K (accession 0001628280-26-050763, filed July 30, 2026); and the Form 6-K reports filed between July 7 and October 7, 2026, cited individually under Subsequent events. --- ## Business *From the Form 20-F 2025, accession 0001628280-26-017024.* Shell is an integrated energy company. It finds and produces oil and natural gas, turns gas into liquefied natural gas (LNG) and ships and trades it, refines crude oil, makes petrochemicals, and sells fuels, lubricants and related products to drivers, fleets, airlines, shipping lines and industrial customers through its own branded retail network and commercial channels. It also trades crude, oil products, gas, LNG and power on a very large scale, and calls trading and optimisation "the heart of our integrated model". Revenue in 2025 was $266.9 billion (2024: $284.3 billion). Shell describes itself as the world's leading publicly listed LNG supplier, serving nearly a fifth of global LNG demand. It is also the world's largest supplier of finished lubricants and a leading fuel retailer. It employs about 85,000 people in more than 70 countries and is headquartered in London. Its shares trade in London, Amsterdam and, as ADSs, in New York. Shell reports six segments. The 2025 figures below show where the earnings come from: the two production segments, Integrated Gas and Upstream, earned most of the year's $18.5 billion of Adjusted Earnings. - **Integrated Gas**: natural gas exploration and production, liquefaction into LNG, conversion of gas to liquid fuels (GTL), and the marketing, trading and optimisation of LNG. 2025: income $8.8 billion, Adjusted Earnings $8.0 billion, cash flow from operations $14.1 billion, production 931 thousand barrels of oil equivalent a day (kboe/d), LNG sales 73 million tonnes. - **Upstream**: exploration and production of crude oil, gas and natural gas liquids, both in deep water (Gulf of America, Brazil, Nigeria) and in conventional fields, plus the transport and marketing of that output. 2025: income $9.4 billion, Adjusted Earnings $7.4 billion, cash flow from operations $19.6 billion, production 1,828 kboe/d. - **Marketing**: Mobility (the retail network, including electric-vehicle charging and convenience retail, and wholesale commercial fuels), Lubricants, and Sectors and Decarbonisation (fuels, specialty products and low-carbon products such as biofuels for aviation, marine and agriculture customers). 2025: income $2.1 billion, Adjusted Earnings $4.0 billion, sales volumes 2,753 thousand barrels a day. - **Chemicals and Products**: refineries and chemical plants, the pipeline business, and the trading and optimisation of crude oil, oil products and petrochemicals. 2025: income $0.3 billion, Adjusted Earnings $1.1 billion; the chemicals business lost money for the year. - **Renewables and Energy Solutions**: renewable power generation; marketing and trading of power and pipeline gas; hydrogen; carbon capture and storage (CCS) hubs; carbon credits and nature-based projects; and Shell Ventures. 2025: loss $0.5 billion, Adjusted Earnings $0.2 billion. Trading and energy marketing earnings more than covered losses in generation, hydrogen, CCS and the other activities. - **Corporate**: holding companies and treasury, headquarters costs, self-insurance and the longer-term innovation portfolio. All group finance costs and income are booked here. **Strategy and financial framework.** Shell's stated strategy is "more value with less emissions". It aims to grow its LNG business, keep liquids production steady, and reshape its downstream and low-carbon businesses for returns. The targets set at its June 2025 Capital Markets Day are: - grow LNG sales by 4–5% a year to 2030; - sustain liquids production at 1.4 million barrels a day while growing combined Upstream and Integrated Gas production by 1% a year to 2030; - hold cash capital expenditure at $20–22 billion a year over 2025–2028; - return 40–50% of cash flow from operations to shareholders through the cycle, favouring buybacks, with a progressive dividend rising 4% a year (subject to Board approval); - cut structural costs by a cumulative $5–7 billion by the end of 2028 compared with 2022 ($5.1 billion had been delivered by the end of 2025); - grow normalised free cash flow per share by more than 10% a year to 2030. Its climate targets are net-zero emissions by 2050, a halving of Scope 1 and 2 operational emissions by 2030 compared with 2016 (about 70% of that reduction achieved by 2025), and a 15–20% cut in the net carbon intensity of the energy products it sells by 2030 (9% achieved by end-2025). Shell had about $20 billion of capital employed in lower-carbon platforms at the end of 2025. **How the portfolio changed in 2025.** - **LNG.** LNG Canada shipped its first cargoes in June 2025, and Shell completed its acquisition of Pavilion Energy in Singapore, which strengthened its LNG trading portfolio. - **Upstream.** Shell sold The Shell Petroleum Development Company of Nigeria (SPDC) in March 2025. It formed the Adura Energy joint venture, one of the largest independent producers in the UK North Sea, and the gain on that deal drove most of Upstream's $2.8 billion of disposal gains. New projects started up, including Whale in the Gulf of America and Mero-4 offshore Brazil. - **Chemicals and Products.** Shell divested the Energy and Chemicals Park in Singapore and its interest in Colonial Pipeline. In November 2025 it swapped its remaining 10% oil-sands mining interest in Canada for a further 10% of the Scotford upgrader and the Quest CCS facility. - **Downstream and low-carbon.** Shell decided not to restart construction of the Rotterdam biofuels plant. It withdrew from the Atlantic Shores offshore wind project and closed or sold around 800 lower-performing retail sites. --- ## Risk factors *From the Form 20-F 2025, accession 0001628280-26-017024. The second-quarter 2026 interim report states that no material changes to these risk factors are expected for the rest of 2026.* - **Commodity prices and the macro economy.** Shell's earnings rise and fall with oil, gas, product, chemical and power prices. Low prices cut Integrated Gas and Upstream revenue and have in the past led to project delays, impairments and reserve debookings. High prices can shrink Shell's reserve entitlement under production-sharing contracts and reduce demand in Marketing and in Chemicals and Products. Tariffs, including those announced by the USA, and government price caps add uncertainty. - **Project delivery and reserves replacement.** Future output depends on delivering large integrated projects and replacing proved reserves. Proved reserves fell to 8,123 million boe at December 31, 2025 from 9,620 million boe a year earlier, largely because of the Canadian oil-sands swap and the Nigeria (SPDC) sale. Reserve estimates are judgemental and have been corrected in the past. - **Country and geopolitical risk.** Shell has experienced forced divestment, expropriation, contract renegotiation, windfall and retroactive taxes, and security threats such as kidnapping, sabotage and crude theft. It names the conflicts in the Middle East as a live risk to its operations "in the region and beyond". - **Joint arrangements.** Many major assets are run with partners or by other operators. That limits Shell's control over performance and costs, but it still carries environmental, legal and sanctions exposure, sometimes jointly and severally. - **Climate change and the energy transition.** Shell faces lower demand and prices for oil and gas, low-carbon businesses that earn thinner margins than oil and gas, investors and lenders pulling back from fossil-fuel financing, rising carbon costs, and the physical effects of climate change on its assets. It also faces climate litigation: in the Netherlands, Milieudefensie has appealed to the Dutch Supreme Court against the November 12, 2024 Court of Appeal judgment that overturned an order requiring Shell to cut emissions by 2030. - **Financial risk.** Shell relies on bond and commercial-paper markets, some financial institutions are limiting their exposure to fossil-fuel projects, and it is exposed to currency movements, counterparty credit and the funding of large defined-benefit pension plans. - **Trading.** Commodity trading exposes Shell to market losses that hedging cannot fully remove. Because of the volume of trades, there is also a risk of control failures or traders exceeding limits, which Shell says has happened before, and of regulatory fines. - **Health, safety, security and the environment.** A major explosion, leak or spill could cause deaths, environmental damage and loss of permits, and insurance covers such losses only partly. Shell cites the 2023 fire at its Deer Park chemicals facility. Four people died in Shell-operated businesses in 2025. - **Cyber security and technology.** Shell depends heavily on IT systems and faces ransomware, denial-of-service attacks and attacks by state actors on energy infrastructure. AI adds new security and regulatory risks. - **Litigation and regulatory compliance.** Shell is exposed to antitrust, anti-bribery, sanctions and data-privacy rules, and has been fined under EU competition law and settled with the SEC under the Foreign Corrupt Practices Act in the past. English courts are increasingly letting claims proceed against UK parent companies over the conduct of overseas subsidiaries. The NAM joint venture with ExxonMobil remains financially responsible for its liability for earthquake damage caused by production from the Groningen gas field. - **Reputation, people and culture.** Public debate over the role of oil and gas, accusations of profiteering when prices are high, and advertising complaints can erode Shell's licence to operate. Delivering the strategy depends on adapting the culture and skills of its workforce. - **Shareholder remedies.** Shell's Articles of Association require shareholder disputes to be settled by arbitration in London. That could limit the remedies available to investors, including under securities laws. --- ## Management's discussion: fiscal 2025 *From the Form 20-F 2025, accession 0001628280-26-017024.* Lower oil, gas and LNG prices outweighed higher volumes and lower costs in 2025. Brent averaged $69.1 a barrel against $80.8 in 2024. Henry Hub rose to $3.5 per MMBtu from $2.2 and EU TTF to $11.9 from $11.0. Shell's indicative refining margin improved to $10.14 a barrel from $7.74, while the indicative chemical margin slipped to $147.9 a tonne from $151.72 under pressure from overcapacity in China. Income for the period rose to $18.1 billion from $16.5 billion, and income attributable to Shell plc shareholders to $17.8 billion from $16.1 billion. Basic earnings per share were $3.03, against $2.55. Net income rose even though underlying earnings fell, because identified items were a net loss of only $53 million in 2025 against $7.36 billion in 2024. Adjusted Earnings, which exclude identified items and inventory price effects, fell to $18.5 billion from $23.7 billion. Management attributes the fall mainly to lower realised liquids and LNG prices, lower trading and optimisation, and weaker chemicals margins, partly offset by higher volumes, lower operating expenses, favourable tax movements and better Marketing margins. Operating expenses fell to $35.7 billion from $36.9 billion. Return on average capital employed (ROACE), Shell's non-GAAP measure, fell to 9.4% from 11.3%. Oil and gas production available for sale averaged 2,800 kboe/d, against 2,836, as divestments and field decline outweighed new production. The segments contributed as follows (Adjusted Earnings, 2025 against 2024): - **Integrated Gas**: $8.0 billion against $11.4 billion. Lower trading and optimisation contributions and lower realised prices cost $3.0 billion. LNG sales rose 11% to 73 million tonnes, with a record number of cargoes, helped by Pavilion Energy. Liquefaction volumes eased to 28 million tonnes from 29. - **Upstream**: $7.4 billion against $8.4 billion. Lower realised liquids prices cost $2.9 billion, partly offset by lower well write-offs and higher sales volumes. Reported income rose to $9.4 billion on the Adura disposal gains, partly offset by a $536 million UK Energy Profits Levy charge. - **Marketing**: $4.0 billion against $3.9 billion. Mobility and Lubricants had their best-ever results on higher premium-product margins, while Sectors and Decarbonisation margins fell. Identified items included $1.4 billion of net impairments, including the impact of the decision not to restart the Rotterdam biofuels plant. - **Chemicals and Products**: $1.1 billion against $2.9 billion. Products margins fell by $972 million, mostly from trading and optimisation even though refining margins improved, and chemicals margins fell by $604 million. - **Renewables and Energy Solutions**: $0.2 billion against a $0.5 billion loss, on lower operating expenses and better generation and energy-marketing margins. - **Corporate**: the net loss narrowed by $98 million as favourable tax movements outweighed higher net interest costs. **Cash flow, balance sheet and distributions.** Cash flow from operating activities fell to $42.9 billion from $54.7 billion. The main drivers were lower Adjusted EBITDA ($56.1 billion against $65.8 billion) and a $1.8 billion working-capital outflow, against an inflow in 2024. Free cash flow was $26.1 billion, against $39.5 billion. Cash capital expenditure was $20.9 billion, of which Upstream took $9.3 billion and Integrated Gas $4.7 billion. Divestment proceeds were $2.4 billion. Net debt rose to $45.7 billion from $38.8 billion, and gearing to 20.7% from 17.7%. Total debt fell to $75.6 billion, and cash ended the year at $30.2 billion. Shell maintains an undrawn $8 billion committed credit facility maturing in 2030. Shareholders received $8.5 billion in dividends and $13.9 billion in buybacks, a combined 52% of cash flow from operations. The buybacks retired 396.4 million shares at an average $35.01. The 2025 dividend totalled $1.446 per share. The fourth-quarter 2025 dividend of $0.372 was 4% above the third quarter's. **Events after the 2025 year end** (disclosed in the 20-F): - **Share buyback.** A $3.5 billion buyback was announced on February 5, 2026. - **Middle East.** The 20-F records that, after the balance-sheet date, the Iran conflict disrupted oil and gas supply from the Middle East and made commodity markets highly volatile. Shell said that, at the date of the 20-F, the conflict had not had a material impact on its financial position. - **Jiffy Lube sale.** On March 9, 2026, Shell agreed to sell 100% of its Jiffy Lube business (Jiffy Lubricants International in the 20-F; Jiffy Lube International in the interim report) to an affiliate of Monomoy Capital Partners for $1.3 billion, keeping a long-term lubricants supply agreement. That sale closed on June 30, 2026 (see below). --- ## Current quarter: second quarter 2026 *From the Unaudited Condensed Interim Financial Report for the three and six months ended June 30, 2026, Form 6-K, accession 0001628280-26-050763.* **What changed this quarter.** The Middle East conflict cut Shell's production but lifted prices, margins and trading results. Shell earned much more as a result, and cash flow recovered after a first quarter weighed down by working capital. - **Earnings.** Revenue was $94.7 billion, against $69.7 billion in the first quarter of 2026 and $65.4 billion in the second quarter of 2025; total revenue and other income, which adds the share of profit of joint ventures and associates and interest and other income, was $96.4 billion. Income attributable to Shell plc shareholders was $10.8 billion, against $5.7 billion in the first quarter and $3.6 billion a year earlier. Basic earnings per share were $1.94 (diluted $1.92). Adjusted Earnings were $9.8 billion, against $6.9 billion and $4.3 billion. Against the first quarter, management attributes the rise to higher realised prices, higher LNG trading and optimisation, favourable tax movements, stronger chemicals margins, and higher crude and oil-products trading. Lower volumes, mainly from the conflict's impact on Qatari output, and lower lubricants margins partly offset these gains. - **Production.** Oil and gas production available for sale fell to 2,455 kboe/d from 2,752 in the first quarter and 2,682 a year earlier. - **Identified items.** Identified items were a net gain of $0.4 billion, against a net loss of $2.4 billion in the first quarter. The second-quarter items included favourable fair-value movements on commodity derivatives, gains on asset sales and impairment charges. - **Cash flow and debt.** Cash flow from operating activities was $21.4 billion, against $6.1 billion in the first quarter. It included a $3.4 billion working-capital inflow and $1.3 billion of inflows from the timing of emission-certificate and biofuel-programme payments, less $2.9 billion of tax paid. Free cash flow was $17.5 billion. Net debt fell to $41.8 billion from $52.6 billion at the end of March, and gearing to 18.7% from 23.2%. Cash and cash equivalents were $31.4 billion, total debt $73.1 billion and total equity $181.8 billion at June 30, 2026. ROACE was 12.4%. - **Shareholder returns.** Shell paid $5.2 billion to shareholders in the quarter: $3.0 billion of buybacks and $2.2 billion of dividends. It declared a second-quarter dividend of $0.3906 per share ($0.7812 per ADS), the same as the first quarter and up from $0.358 a year earlier. Shell temporarily suspended the $3.0 billion buyback announced with its first-quarter results because of the ARC Resources agreement, and only $1.8 billion of it was completed. Shares in issue fell to 5,570,928,127 at June 30, 2026 from 5,718,636,398 at the start of the year. **Segments, second quarter 2026** (Adjusted Earnings, against the first quarter of 2026): - **Integrated Gas**: $2.69 billion against $1.82 billion. Higher trading and optimisation and realised prices added $1.36 billion, partly offset by $0.91 billion from lower volumes. Production fell 31% to 631 kboe/d, mainly because of the conflict's impact on Qatari volumes. LNG liquefaction fell 2% to 7.73 million tonnes, mainly because of the conflict's impact on Qatari volumes and higher planned maintenance across the portfolio, partly offset by strong performance in Australia and Canada. LNG sales were 17.96 million tonnes. - **Upstream**: $3.49 billion against $2.38 billion, on higher realised prices (+$1.13 billion) and favourable tax movements, partly offset by $242 million of oil export levies in Brazil. Production was 1,824 kboe/d against 1,843, as heavier maintenance was partly offset by new oil production in Brazil and the Gulf of America. - **Marketing**: $1.33 billion, flat with the first quarter. Weaker lubricants margins and lower trading were offset by higher Mobility unit margins and favourable tax movements. Sales volumes fell to 2,570 thousand barrels a day on market impacts from the Middle East conflict. Reported income included $282 million of disposal gains, mainly from the sale of Jiffy Lube International. - **Chemicals and Products**: $2.88 billion against $1.93 billion in the first quarter and $0.12 billion a year earlier. Chemicals margins rose by $454 million and Products margins by $429 million, mainly on higher trading and optimisation. Products earned $2.52 billion and Chemicals $0.35 billion. Refinery utilisation was 102% and chemical plant utilisation 83%. - **Renewables and Energy Solutions**: $79 million against $348 million, on lower trading and optimisation margins. Reported results included $536 million of impairments, mainly on renewable generation assets in Asia and Europe. - **Corporate**: a net expense of $617 million against $908 million, helped by favourable net interest and tax movements. **First half 2026.** Income attributable to shareholders was $16.5 billion against $8.4 billion in the first half of 2025, and Adjusted Earnings were $16.8 billion against $9.8 billion. Cash flow from operations was $27.5 billion against $21.2 billion. That was despite $7.7 billion of net working-capital outflows for the half: a large first-quarter outflow partly reversed by the second-quarter inflow. Shell has now delivered $5.8 billion of pre-tax structural cost reductions since 2022, $0.7 billion of them in the first half of 2026. Integrated Gas cash flow in the half also included a $635 million payment relating to a legal case, which the report does not describe further. **Portfolio developments reported with the results:** - **ARC Resources (agreed, April 2026).** Shell agreed to buy ARC Resources Ltd., a producer focused on the Montney shale basin in British Columbia and Alberta. Each ARC share would receive C$8.20 in cash (about $5.92 at the completion-date rate; see Subsequent events) plus 0.40247 Shell ordinary shares, giving an equity value of about $13.6 billion at Shell's April 24, 2026 share price. The deal closed on September 2, 2026 (see Subsequent events). - **Na Kika and Coulomb (agreed, June 2026).** Shell agreed to sell its 50% non-operated interest in the Na Kika platform and associated fields in the Gulf of America, together with its 100%-owned Coulomb tieback, for $1.7 billion, subject to adjustments and certain contingent payments. Closing is expected by the end of 2026. - **Jiffy Lube International (completed June 30, 2026).** The sale to an affiliate of Monomoy Capital Partners for $1.3 billion closed, with a long-term lubricants supply agreement retained. - **Sprng Energy (agreed, July 2026).** Shell agreed to sell 100% of Solenergi Power Private Limited, which owns the Sprng Energy group, to Aditya Birla Renewables Limited for $1.8 billion. Completion is expected by the end of 2026. - **Raizen.** In June 2026, Shell's 44%-owned joint venture Raizen filed a restructuring plan, which still needs court approval. The plan would convert debt into equity, diluting Shell's stake, and require a capital injection from Shell of BRL 3.5 billion ($685 million as stated by Shell). The plan terminates automatically if its conditions are not met by March 31, 2027, extendable once by up to six months. - **Assets held for sale.** Assets classified as held for sale rose to $2.4 billion at June 30, 2026, principally Sprng Energy and a working interest in Brazil. - **Price assumptions.** Shell's future long-term commodity price assumptions, which it treats as a significant accounting estimate, changed during the second quarter and remain under review given continued market volatility. **Guidance given with the results:** - **Capital spending.** Full-year 2026 cash capital expenditure is expected to be $24–26 billion, above the $20–22 billion annual range in the Capital Markets Day framework ($21 billion was spent in 2025). - **Third-quarter 2026 outlook** (excluding any volumes from ARC Resources and from Qatar): Integrated Gas production of 570–630 kboe/d; LNG liquefaction of 7.1–7.7 million tonnes; Upstream production of 1,680–1,880 kboe/d, reflecting heavier maintenance; Marketing sales of 2,550–2,750 thousand barrels a day; refinery utilisation of 93–101%; chemical plant utilisation of 78–86%; and a Corporate net expense of $500–700 million. --- ## Subsequent events *These events cover July 7 through October 7, 2026. Each is cited to the Form 6-K that reports it, with the Q2 2026 interim report (accession 0001628280-26-050763) for events it records after June 30.* - **ARC Resources acquisition completed (September 2, 2026).** ARC shareholders approved the deal on July 14, 2026, with about 99.54% of votes cast in favour (Q2 interim report, Note 9). Shell completed the acquisition on September 2, 2026, after receiving all shareholder, court and regulatory approvals (6-K accession 0001171843-26-005865). - **Price.** ARC holders receive C$8.20 in cash (about $5.92 at the September 2, 2026 closing rate of C$1.385 per US dollar) plus 0.40247 Shell ordinary shares per ARC share. At Shell's September 2 closing price, the equity value was about $13.9 billion, funded with $3.3 billion of cash and $10.6 billion of new Shell shares. Shell also takes on about $2.5 billion of net debt and leases, for an enterprise value of about $16.5 billion. - **What Shell gains.** The deal adds about 370 kboe/d of liquids and gas production immediately. Shell says this supports production growth of around 4% a year to 2030 compared with 2025, and that the deal should be accretive to free cash flow per share from 2027. - **New shares.** Shell applied to list 228,003,843 new ordinary shares issued as part of the consideration, with admission expected on September 3, 2026 (6-K accession 0001171843-26-005830). - **New share buyback programme (July 30, 2026).** The programme totals $4.232 billion: $3.000 billion of new buybacks plus the $1.232 billion not executed under the previous programme, which was suspended in connection with the ARC agreement. It runs to October 23, 2026, and Shell intends to finish it before its third-quarter results (6-K accession 0001171843-26-005059, Exhibit 99.2). - **Debt exchange (July 9, 2026).** Holders of $6.298 billion of unregistered Shell Finance US Inc. notes, guaranteed by Shell plc, exchanged them for a like amount of new registered notes. This was not new borrowing (6-K accession 0001193125-26-299287, Exhibit 99.1). - **UK tax proposal (July 13, 2026).** The UK Government published draft legislation that would exempt foreign permanent establishments from UK tax, which could limit Shell's use of foreign tax attributes against UK profits. Shell says it is monitoring the proposal (Q2 interim report, Note 7). - **Updated third-quarter outlook (October 7, 2026).** Including ARC, Integrated Gas production is now expected at 740–780 kboe/d. The July guidance of 570–630 kboe/d had excluded both ARC and Qatar volumes. Shell also expects an outflow of about $2.5 billion in operating cash flow for German fuel-emissions certificates, and says net debt will reflect the ARC cash consideration and assumed debt. Third-quarter results are scheduled for October 29, 2026 (6-K accession 0001171843-26-006483). - **Still pending at October 7, 2026.** The Na Kika/Coulomb sale ($1.7 billion) and the Sprng Energy sale ($1.8 billion), both expected to close by the end of 2026, and court approval of the Raizen restructuring plan.