Job fears as Shell suf­fers $18bn loss

Chief ex­ec­u­tive’s de­par­ture will be over­shad­owed by bank’s po­si­tion as a do­mes­tic cham­pion at a time when Bri­tain is in eye of a storm ‘In short, Shell’s sprawl­ing em­pire has taken a se­vere pound­ing’

The Daily Telegraph - Business - - Front Page - By Si­mon Foy

SHELL plunged to a mam­moth loss in the sec­ond quarter of 2020 af­ter slash­ing the value of its oil and gas fields by a record $17bn.

The An­glo-Dutch oil be­he­moth posted a loss of $18.4bn (£14.2bn) on a cur­rent cost of sup­plies ba­sis, the mea­sure the com­pany uses to as­sess per­for­mance – down from a $3bn profit for the same pe­riod last year. It is likely to spark fears of mass job cuts in a bid to steady the ship, fol­low­ing in the foot­steps of ri­val BP, which is ax­ing 10,000 roles.

Shares fell nearly 6pc to £11.14. The stock was trad­ing above £20 in early Fe­bru­ary be­fore the cri­sis hit.

Bosses were forced to write off $16.8bn from the com­pany’s as­sets af­ter crude oil plunged fol­low­ing an un­prece­dented col­lapse in de­mand as lock­downs brought the world econ­omy to a halt. How­ever, ex­clud­ing one-off charges, the com­pany de­liv­ered a small net profit – ahead of ex­pec­ta­tions.

Shell said the im­pair­ment was trig­gered by a drop in price fore­casts over the medium and long term. The Brent crude in­ter­na­tional oil bench­mark is down 37pc since the start of the year.

It wasn’t meant to end like this. Lloyds might be “help­ing Bri­tain to pros­per” but as boss An­to­nio Horta-Oso­rio heads for the exit, the bank cer­tainly isn’t. It’s not all his fault, of course. As the Por­tuguese points out, “sup­port­ing [cus­tomers] through the cur­rent cri­sis will have a cost”, and quite a hefty one at that: an­other £2.4bn of pro­vi­sions set aside for bad debts, tak­ing the to­tal to £3.8bn for the first half of the financial year.

The im­pair­ments dragged the bank to a £676m loss for the pe­riod from a £1.3bn profit the same time last year, a swing of more than £1.6bn. An­a­lysts had pen­cilled in losses of just £31m.

Horta-Oso­rio cer­tainly wouldn’t want the shares to be where they are now either. The num­bers sent the City into a state of blind panic, the share price crash­ing 8pc to 26p. That’s the worst it’s been dur­ing Horta-Oso­rio’s nine-year ten­ure, though not quite a record low. That ac­co­lade was achieved dur­ing the dark days of 2009 and the financial cri­sis.

Still, hav­ing with­drawn from a string of for­eign out­posts and repo­si­tioned Lloyds as a do­mes­tic cham­pion that backs UK busi­nesses and con­sumers, there is very lit­tle it can do to avoid be­ing in the eye of the storm.

High street banks have always been a lever­aged play on eco­nomic growth but the repo­si­tion­ing of Lloyds means it is now es­sen­tially a bet on UK eco­nomic growth and the like­li­hood of a V-shaped re­cov­ery, not to men­tion a smooth and pain­less Brexit. Well, good luck with that. A smart in­vestor would hedge that punt, es­pe­cially af­ter th­ese re­sults.

Lloyds es­ti­mates pro­vi­sions will hit the £5bn mark by the end of the year, so at least it thinks the worst is over, and if it wasn’t be­ing cau­tious and set­ting aside some­thing for a rainy day then share­hold­ers would be beat­ing man­age­ment around the head with a stick.

At times like this, in­vestors will give you lee­way so why not kitchen sink ev­ery­thing to avoid com­ing back for more?

Yet, that’s all pro­vi­sions are – a guess. The bank is putting aside a pot of money that may or may not use and it has to err on the side of cau­tion. The re­al­ity is that no­body knows, least of all Lloyds as its de­tailed sce­nario plan­ning demon­strates. Even its “best-case” sce­nario of a 9.5pc fall in GDP this year and 7pc un­em­ploy­ment sounds ter­ri­ble.

Yet, “se­vere” level is so apoc­a­lyp­tic that it skews the weighted aver­age, mak­ing it worse than the “down­side” sce­nario.

That means there is an even worse-case sce­nario than the worst-case sce­nario, which is some achieve­ment, but it also shows that this is re­ally noth­ing more than a finger in the air ex­er­cise. It’s not look­ing good for Horta-Oso­rio’s big send-off next year.

‘There is an even worse-case sce­nario than the worst-case sce­nario’

Oil gi­ant cut down to size by cri­sis

Nev­er­mind net zero, how about mi­nus $18bn? As Shell boss Ben van Beur­den says: “Th­ese are ex­tra­or­di­nary times.” So ex­tra­or­di­nary in fact that the An­glo-Dutch oil go­liath can lose the equiv­a­lent of Botswana’s an­nual GDP in a sin­gle financial quarter and its share price rises.

Ad­mit­tedly it was only a mo­men­tary spike be­fore re­treat­ing 4pc later in the day, but even that seems mild on the face of it given that the pan­demic al­most pushed Shell to its big­gest ever quar­terly loss. It was saved from that em­bar­rass­ment by its vast trad­ing arm, where per­for­mance was “one of the best on record”, ac­cord­ing to fi­nance chief Jes­sica Uhl. There were other records too: a $16.5bn write-down on Shell’s sprawl­ing oil and gas as­sets, which would have been an eye-wa­ter­ing $22.3bn if it had used the pre-tax fig­ure.

The im­pair­ments are fairly evenly shared too, though the largest was $8.1bn off the value of gas projects, awk­ward when Shell has placed so much em­pha­sis on this part of the busi­ness help­ing to wean it off oil ex­plo­ration; $4.7bn of charges on var­i­ous oil­fields in North Amer­ica, Brazil, Europe, and Nige­ria; and a fur­ther $4bn hit to its re­finer­ies.

In short, Shell’s sprawl­ing em­pire has taken a se­vere pound­ing from plum­met­ing de­mand. The aver­age price of a bar­rel of oil was less than $30 dur­ing the pe­riod, com­pared with al­most $70 a bar­rel in early Jan­uary.

Still, it en­ables van Beur­den to step up the push into re­new­ables. At a pal­try $3bn of in­vest­ment a year cur­rently, there is no dan­ger of Shell set­ting any records on that front.

Fi­nal page turns on cat­a­logue

Farewell to the Ar­gos cat­a­logue, scrapped af­ter al­most half a cen­tury and one bil­lion copies. Still, it’s hardly a shock. The real sur­prise is that in a world of iPhones and tablets, some­thing that is es­sen­tially only one step up from a vel­lum man­u­script has man­aged to sur­vive un­til 2020.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.