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Shell Braces For A $2.3 Billion Impairment Charge In Q4

Shell expects to book an after-tax impairment charge of between $1.7 and $2.3 billion for the fourth quarter of 2019 along with well write-offs of between $100-200 million, the company said in an update on its fourth-quarter financial performance. The supermajor will release its fourth-quarter report on January 30.

In further charges, Shell expects an impairment of $500-600 million from deferred taxes and another $100-200 million from well decommissioning. Neither will have a cash effect on Shell’s performance.

The company attributed the substantial impairment charge to the “macro outlook”, suggesting that factors such as the U.S-China trade dispute that led to a market-wide pessimism about global economic growth and, consequently, oil demand, have affected its performance.

In oil production, Shell said it expected the total for Q4 2019 to be between 2.775 and 2.825 million bpd, on an oil equivalent basis.

In gas production, Shell expects an average daily of 920,000 and 970,000 barrels of oil equivalent, with LNG output at 8.8-9.4 million tons.

As for capex, the Anglo-Dutch supermajor said its full-year will be closer to the lower end of the range it had given earlier this year, at $24-29 billion. This was related to concern in the company about its capacity to sustain a generous buyback program aimed at boosting shareholder trust after the 2014 oil price crisis.

Related: Forget The Hype, Aramco Shares May be Valued At Zero Next Year

“Keeping capex low is another indication of being cautious,” an ABN Amro analyst told Bloomberg. “This is confirmation that indeed the climate is still weak.”

The update is the latest indication that the oil industry has suffered a significant blow by the weaker economic outlook that has haunted markets this year. Now, some analysts expect an improvement in 2020, thanks to the improved prospects of a final U.S-China trade deal and the OPEC+ production cuts that may lead to higher oil prices.

By Irina Slav for Oilpirce.com

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