$5.4 billion lifts Shell’s net debt as shipping leases are remeasured
Key Facts
A $5.4 billion increase in shipping lease costs added $5.4 billion to Shell’s net debt in the third quarter of 2026 compared with the previous three months, Reuters reported on October 30. Reuters said the increase was a non-cash accounting effect, meaning it did not represent a cash payment of the same amount in that quarter. The measurement is linked to shipping lease contracts whose obligations change with spot market rates. The figures show how shipping disruption affects the energy company’s valuation of long-term obligations, even as its overall net debt fell during the period. The company’s shares closed at $108.69 on October 30, according to EL7 data.
Net debt stood at $39.7 billion on September 30, down from $41.8 billion on June 30, according to Shell’s official results. The decline puts the accounting increase linked to shipping leases in the context of the broader balance sheet: total net debt fell between the ends of the two quarters, despite higher lease liabilities. The company said about $8 billion of net debt reflects the non-cash effect of the variable component in long-term shipping lease contracts under current market conditions. Net debt excluding leases was $5.6 billion in the third quarter. The difference highlights the gap between the net debt measure that includes lease valuations and the figure excluding them, without implying that the accounting value became a cash outflow.
Debt details show lease liabilities within total debt rising to $34.147 billion on September 30, from $29.627 billion on June 30, according to the unaudited third-quarter disclosure. This movement is consistent with remeasurement of the variable component of lease contracts in light of market rates, as these are long-term obligations affected by the underlying index. Free cash flow, meanwhile, was $16.3 billion in the third quarter, compared with $17.5 billion in the second quarter. It remained above the $10.0 billion recorded in the third quarter of 2025. These figures distinguish movement in the accounting lease item from the free cash flow the company reported for the period.
Shell linked the remeasurement to sharp increases in the underlying index due to the conflict in the Middle East, explaining that the obligations are remeasured at spot market rates. Reuters said spot oil tanker rates reached a record in early October. The report attributed this to Middle Eastern producers increasing exports through shuttle and ship-to-ship transport to move oil through the Strait of Hormuz, occupying available vessels. This context puts pressure on energy companies that rely on shipping arrangements whose prices are affected by the market. The increase in remeasured liabilities, however, does not necessarily equal actual contract payments, as it is tied to the spot pricing used in the valuation.
Shell’s chief financial officer said the cost of the shipping route from the Middle East to China had reached about ten times its level 12 months earlier. In a statement carried by Reuters, she added: "This route alone from anywhere in the Middle East to China currently costs about 10 times what it cost just 12 months ago." The company linked a decline in lease costs to shipping traffic returning to normal through the Strait of Hormuz. This makes the route through the strait a direct factor in how variable lease valuations evolve, according to the company’s explanation. The company’s next update is scheduled for February 4, 2027, when it will announce fourth-quarter 2026 results and distributions alongside a capital markets update.