Royal Dutch Shell is writing down the value of its oil and gas assets by up to $22 billion as it adjusts the oil’s historic crash in recent months.
Shell updated its mid and long-term price and refining margin forecast in the second quarter of 2020 reflecting the anticipated impact of the COVID-19 pandemic and related macroeconomic as well as the demand and supply dynamics of the energy market. This has culminated in a review of a significant portion of Shell’s Refining tangible and intangible assets, Up-stream and Integrated Gas business.
Shell said in a statement to investors that it had reviewed a significant portion of its business given the impact of the coronavirus pandemic and the “ongoing challenging commodity price environment.”
Shell said it expected international benchmark Brent crude prices to average $35 a barrel in 2020, down from a previous forecast of $60.
The firm also lowered its Brent price forecast to $40 in 2021 and $50 in 2022, having previously said it expected prices to average $60 for each respective year.
The energy giant also said it believes Henry Hub gas prices will average $1.75 per million British thermal units in 2020, before rising to $2.5 over 2021 and 2022, and $2.75 in 2023. The company lowered its long-term refining profit margin outlook by 30%.
Based on these reviews, Shell said it would take aggregate post-tax impairment charges in the range of $15 billion to $22 billion in the second quarter.
Write-downs breakdown per segment is as follows:
Integrated Gas: $8-9 billion, primarily in Australia including a partial impairment of the QGC and Prelude asset values
Upstream: $4–6 billion, largely in Brazil and North America shales
Oil products: $3-7 billion across the refining portfolio Earlier this month, oil major BP slashed its valuation by almost $18 billion as it adjusts to oil’s pandemic era new normal.