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Shell to Book $15 Billion-$22 Billion Impairments After Lowering Oil and Gas Price Forecasts -- Update

06/30/2020 | 03:57am

--Shell expects to book $15 billion-$22 billion in impairments, reflecting lower oil and gas price estimates and refining margin forecasts.

--Similarly, industry peer BP had said earlier this month that it expects $13 billion-$17.5 billion in impairments after lowering its own projections on oil and gas prices.

--Shell sees lower production across both its integrated gas and upstream divisions in the second quarter.

 

By Jaime Llinares Taboada

 

Royal Dutch Shell PLC said Tuesday that it expects to book post-tax impairments of between $15 billion and $22 billion in the second quarter after it revised down its oil and gas mid- and long-term price expectations.

The British-Dutch oil giant said the revised commodity prices and refining margin outlooks reflect the expected effects of the coronavirus pandemic and related macroeconomic developments, as well as energy market demand and supply fundamentals.

Shell now sees the long-term Brent oil price at $60 per barrel, and the Henry Hub gas price at $3.0 per million British thermal units. In addition, average long-term refining margins have been lowered by around 30%.

The company said $8 billion to $9 billion impairments are related to its integrated gas division, while $4 billion-$6 billion relate to the upstream business, and $3 billion-$7 billion to the oil-products unit.

BP PLC said on June 15 that it anticipates second-quarter impairments of between $13 billion and $17.5 billion after revising down its own oil and gas price forecasts.

Shell also said it expects production of between 880,000 and 910,000 barrels of oil equivalent per day from its integrated gas business in April-June. This would mark a fall from 927,000 barrels a year earlier. Liquefied natural gas, or LNG, volumes are also seen lower.

In addition, Shell warned that it will start to see the impact of lower oil prices on its oil-indexed LNG supply contracts from June onwards, and will book additional gas well write-offs of $250 million to $350 million in its second-quarter results.

Production across its upstream business is expected at between 2.3 million and 2.4 billion barrels of oil equivalent per day. This would also be lower than 2.7 million barrels in the second quarter of 2019, but better than previously forecast, the company said.

Moreover, Shell anticipates receivables and inventory provisions to hurt second-quarter earnings by $200 million-$400 million, and said that it will book a $500 million cashflow impact related to the Lula unitisation settlement in Brazil.

Shares in London at 0739 were down 16.8 pence, or 1.3%, at 1,254 pence.

 

Write to Jaime Llinares Taboada at jaime.llinares@wsj.com; @JaimeLlinaresT

 

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