RBC Capital Markets has downgraded Shell PLC to 'Sector Perform' from 'Outperform', citing mounting concerns over the energy major's resource depth and what the bank calls a rare "double miss" on earnings.
The investment bank cut its price target to 3,200p from 3,600p, implying roughly 12% upside from current levels.
Analyst Biraj Borkhataria argues Shell delivered a soft trading update that triggered earnings downgrades, then still missed expectations on results day itself, an unusual pattern for the company outside of typically weak fourth quarters.
At the heart of RBC's downgrade lies Shell's shrinking reserve life, which posted a "material step down" in 2025.
Shell now sits at just nine years of reserve life, well behind TotalEnergies at around 13 years and ExxonMobil at roughly 12 years. That gap is expected to widen further once 2025 numbers are released, as Shell's divestment of its Canadian oil sands position removes assets with characteristically high reserve life indices.
Management indicated the 2030 liquids gap has been "effectively solved through smaller inorganic activity," giving the company breathing room to address a 2035 shortfall estimated at approximately the size of one Galp in terms of volumes.
But RBC warns that "absent M&A in the near term, we expect these concerns over longevity to linger, particularly as the other leg of the story on distributions is more funded by the balance sheet."
The bank also highlighted M&A execution risk. Despite Shell reducing its share count by more than 25% since the pandemic, its valuation multiple hasn't expanded relative to the sector, potentially forcing the company to use a combination of cash and equity to complete any meaningful acquisition.
RBC trimmed its 2026-27 earnings estimates by 9% and 3%, respectively, driven in part by a lower oil price deck that assumes $60 per barrel Brent in 2026. "Overall, we see better risk reward elsewhere in the sector," Borkhataria wrote.