Shell to write down as much as Us$22bil after coronavirus impact

Shell said its long-term oil price outlook was now US$60.

LONDON: Royal Dutch Shell said it would write off assets worth up to Us$22bil after the coronavirus crisis knocked oil and gas demand and weakened the energy price outlook.

The Anglo-dutch company has already been preparing a major overhaul after CEO Ben van Beurden laid out plans in April to reduce Shell’s greenhouse gas emissions to net zero by 2050.

Global travel restrictions to prevent the virus spreading affected more than four billion people at one point, taking cars off the roads and grounding planes, driving down fuel demand.

Shell, the world’s largest fuel retailer, said it expected a 40% drop in sales in the second quarter from a year earlier to about four million barrels per day (bpd), although that is more than its earlier prediction of a drop to 3.5 million bpd.

In its update before second-quarter results on July 30, Shell said upstream oil and gas production was expected to average 2.35 million bpd in the three months to June, down from 2.71 million bpd in the first quarter.

Shell, which has a market value of Us$126.5bil, said it would take an aggregate post-tax impairment charge of Us$15bil to Us$22bil in the second quarter.

The oil giant’s shares were down 2% by 0820 GMT. Credit Suisse analyst Thomas Adolff said the second quarter would be the toughest for many companies and Shell had sent a “wake-up call.”

Shell’s move follows BP’S decision to wipe off up to Us$17.5bil from its assets, as it responds to the coronavirus crisis and shifts to low-carbon energy.

Shell responded to the epidemic by cutting its dividend for the first time since World War Two. It is cutting spending in 2020 to a maximum of Us$20bil from Us$25bil. It aims to announce its restructuring plan by the end of 2020.

Shell reduced its expected average benchmark Brent crude price for 2020 to US$35 a barrel from $60. The oil major has also cut its 2021 and 2022 forecasts to US$40 and US$50, respectively, also down from US$60.

Shell said its long-term oil price outlook was now US$60. That compares to BP which cut its long-term Brent forecast to US$55 from US$70, while other rivals still have higher projections. The Anglo-dutch group cut its long-term refining profit margin outlook by 30% and set its long-term natural gas price at US$3 per million British Thermal Units (BTUS).

Shell’s integrated gas business will account for Us$8bil to Us$9bil of the writedowns, while the upstream division will account for Us$4bil to Us$6bil. The company’s downstream refining and marketing will account for another Us$3bil to Us$7bil. The impairments will raise Shell’s debt-to-equity ratio, or gearing, by 3%.

Gearing stood at 28.9% at the end of March.