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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Shell Warns Of Massive $22 Billion Write Down After Oil Crash

Shell

Royal Dutch Shell warned on Tuesday it could take as much as a $22-billion post-tax impairment charge for Q2, becoming the latest oil major warning of a massive write-down of its assets as it revised its price assumptions after the oil price crash.   

“In the second quarter 2020, Shell has revised its mid and long-term price and refining margin outlook reflecting the expected effects of the COVID-19 pandemic and related macroeconomic as well as energy market demand and supply fundamentals,” Shell said in a statement.    
Shell now assumes Brent Crude prices at $35 a barrel this year and $40 per barrel next year, with a long-term oil price assumption at $60 a barrel.

Based on these revised price assumptions, Shell expects aggregate post-tax impairment charges in the range of $15 billion to $22 billion in the second quarter this year.

Shell’s integrated gas division is set to book $8 billion – $9 billion impairment charge, mostly in Australia. In the upstream, the group would take a $4 billion– $6 billion write down, predominantly in the U.S. shale patch and in Brazil. Another up to $7 billion impairment charges could come from across Shell’s refining portfolio.

Shell’s liquefied natural gas (LNG) business will also suffer from the low oil prices, the company warned today, noting that more than 90 percent of its term contracts for LNG sales in 2019 were oil price linked with a price-lag of typically 3-6 months. The impact of lower oil prices on LNG margins became more prominent from June onwards, Shell said.

In Q1, the company cut its dividend for the first time since World War II in order to preserve cash and value in a highly uncertain macroeconomic environment.

Today, Shell became the latest oil major that has lowered its oil price assumptions and warned of a massive impairment charge for Q2. Earlier in June, BP warned of post-tax impairments and writeoffs in the range of $13 billion to $17.5 billion.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on June 30 2020 said:
    Oil supermajors have no alternative but to cut dividends drastically and dispose of any unprofitable business in order to survive rather than sink under the weight of its outstanding debts. Shell is no exception.

    Two weeks ago Shell justified drastic cutting of its dividends by saying it needs the cash resources saved from the dividends’ cut to shift to a position of net zero carbon emissions by 2050. However, Shell knows that zero emissions by 2050 is an illusion. Shell’s CEO Ben Van Beurden said two weeks ago that it is entirely legitimate to invest in oil and gas because the world demands it". "We have no choice."

    Now Shell is using the assumption of oil prices at $35 a barrel this year and $40 per barrel next year to justify writing down $22 bn worth of assets. Shell would have taken exactly the same decision even if oil prices were ranging $50-$60.

    The choice for Shell is between sinking under the weight of its outstanding debts or getting rid of unprofitable assets such as US shale oil assets and some gas and LNG assets at a time of very low gas prices as well as drastically cutting dividends and investments and also trimming the size of its work force. Obviously, Shell made its choice.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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