Royal Dutch Shell is writing down the value of its oil and gas assets by up to $22 billion after the coronavirus crisis hit fuel demand and weakened the outlook for energy prices.
In second-quarter 2020, Shell 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. This has resulted in the review of a significant portion of Shell’s Upstream, Integrated Gas, and Refining tangible and intangible assets.
Shell lowered its energy price outlook June 30 and said in a statement that Brent crude oil prices are expected to reach $40/bbl in 2021 and $50/bbl by 2022. The price is expected to rise to $60/bbl by 2023. The company also lowered its long-term refining profit margin outlook by 30% and set its long-term natural gas price at $3/MMbtu.
Based on these reviews, aggregate post-tax impairment charges in the range of $15-22 billion are expected in the second quarter. Impairment charges are reported as identified items and no cash impact is expected in the second quarter. Indicative 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
These impairments are expected to have a pre-tax impact in the range of $20-27 billion. The Goodwill intangible assets were assessed and no impairment charge on Goodwill is expected to be recorded in the second quarter.
This move by Shell follows similar steps from other major energy companies, such as BP, which plans to reduce the value of its assets by up to $17.5 billion.