Shell books $18 billion loss on huge impairment charges

Oil major Shell booked a loss of $18.1 billion in the second quarter of 2020 due to huge impairments as it cut its price outlook in response to the coronavirus pandemic and the oil price crisis.

Shell said on Thursday that it had booked a loss of $18.1 billion for the second quarter of 2020 compared to a profit of $3 billion in the same period last year.

Shell explained that this included an impairment charge of $16.8 billion post-tax, $22.3 billion pre-tax, as a result of revised medium- and long-term price and refining margin outlook assumptions in response to the COVID-19 pandemic and macroeconomic conditions as well as energy market demand and supply fundamentals.

Shell did warn in late June that it would take impairments in the range of $15 to $22 billion.

Shell said on Thursday that the second quarter 2020 results reflected lower realised prices for oil, LNG and gas, lower realised refining margins, Oil Products sales volumes and higher well write-offs, compared with the second quarter of 2019.

This was partly offset by very strong crude and oil products trading and optimisation results as well as lower operating expenses.

Shell’s adjusted earnings were $0.6 billion for the second quarter of 2020, down 82 per cent from $3.46 billion in the same period last year.

The performance in 2Q 2020 reflected lower realised prices for oil, LNG and gas, lower realised refining margins, Oil Products sales volumes and higher well write-offs, compared with the second quarter of 2019.

This was partly offset by very strong crude and oil products trading and optimisation results as well as lower operating expenses.

Shell Chief Executive Officer, Ben van Beurden, said: “Shell has delivered resilient cash flow in a remarkably challenging environment. We continue to focus on safe and reliable operations and our decisive cash preservation measures will underpin the strengthening of our balance sheet”.

Shell’s second-quarter Upstream segment earnings were a loss of $6.7 billion.

This included a post-tax impairment charge of $4.7 billion mainly related to unconventional assets in North America, assets offshore in Brazil and Europe, a project in Nigeria (OPL245), and an asset in the US Gulf of Mexico.

Also included were a net charge of $187 million mainly related to a reduction in the discount rate used for provisions, as well as redundancy and restructuring costs of $183 million.

Compared with the second quarter of 2019, Upstream adjusted earnings were a loss of $1.5 billion primarily reflecting lower realised oil and gas prices.

Compared with the second quarter 2019, Shell’s total production decreased by 7 per cent, mainly due to the challenging macroeconomic environment, which included OPEC+ restrictions and COVID-19-related restrictions, the impact of divestments and lower production in the NAM joint venture.

Field ramp-ups in the Santos Basin, Brazil, the US Gulf of Mexico and Permian, USA more than offset field decline. Lower production volumes were offset by favourable timing of entitlement liftings.

Looking ahead, Shell said that its Upstream production in 3Q 2020 is expected to be approximately 2,100 – 2,400 thousand boe/d.

Corporate adjusted earnings are expected to be a net expense of approximately $800 – 875 million in the third quarter of 2020 and a net expense of approximately $3.2 – 3.5 billion for the full year 2020.