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Still, having withdrawn from a string of foreign outposts and repositioned Lloyds as a domestic champion that backs UK businesses and consumers, there is very little it can do to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