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Shell follows BP in booking

major write-downs

EUROPE ROYAL Dutch Shell has warned it will shave up barrels per day (bpd), due to a collapse in
to $22bn off the value of its oil and gas assets, demand caused by coronavirus containment
The company, like BP, after cutting its forecasts for oil and gas prices. measures. Its oil and gas output is seen aver-
has cut its long-term The announcement follows a similar move aging 2.35mn bpd in the three months ending
price forecasts. by BP, which warned in mid-June it would write June 30, down from 2.71mn bpd in the first
down up to $17.5bn off the value of its assets. quarter of this year.
In a statement on June 30, Shell told inves- “Cutting long-term price assumptions will
tors it had reviewed most of its business in light generally result in a lower valuation for certain
of the coronavirus (COVID-19) pandemic and assets to below the accounting value held on the
the “ongoing challenging commodity price balance sheet. That’s what will trigger an impair-
environment.” It has subsequently cut its price ment charge,” Wood Mackenzie upstream expert
forecasts on expectations that sales will pick Angus Rodger wrote in a recent note. “The pro-
up only slowly as the world emerges from the cess has further to run, and we expect further
pandemic. large impairments to occur across the sector.”
The oil major sees Brent averaging only $35 Another Wood Mackenzie analyst Luke
per barrel in 2020, $40 in 2021, $50 in 2022 Parker noted that the impairment charges were
and $60 in 2023, with its long-term guidance not just an “accounting technicality,” but “a fun-
set at $60 per barrel. Henry Hub gas prices are damental change hitting the entire oil and gas
expected at $1.75 per mmBtu in 2020, rising to sector.”
$2.5 in 2021 and 2022, $2.75 in 2023 and $3 over “Within this write-down, Shell is giving us a
the longer term, it said. message about stranded assets, just like BP did a
Based on these reviews, “aggregate post-tax few weeks ago,” he said.
impairment charges in the range of $15bn to While the coronavirus pandemic has largely
$22bn are expected in the second quarter,” Shell slashed short-term demand forecasts, it is
said, adding that these write-downs would be increased concerns about climate risks that are
non-cash. They include $8-9bn in charges at prompting BP and Shell to lower their longer-
Shell’s integrated gas business, namely its LNG term assumptions. As governments look to
operations in Australia, including the giant Prel- fast-track plans to decarbonise, some of the
ude export plant. It will book a further $4-6bn in pair’s early-stage assets have essentially become
upstream charges, largely in Brazil and US shale worthless.
basins, and $3-7bn at the company’s oil products “Just a few years ago, few within the oil and
business. gas industry would even countenance ideas
Shell’s shares in London were down 3.7% by of climate risk, peak demand, stranded assets,
13:50 GMT on June 30. liquidation business models and so on. Today
The second quarter will be the toughest for companies are building strategies around these
much of the global oil industry, and Shell’s move ideas,” Parker said. “Demand might still grow
is a “wake-up call,” Credit Suisse analyst Thomas from here, and many companies are still chasing
Adolff said. a share of that growth. But make no mistake, the
The major sees its fuel sales slumping 40% corporate landscape is changing, and the majors
year on year in the second quarter to 4mn are changing with it.” ™

P14 www. NEWSBASE .com Week 26 02•July•2020