Shell posts Q2 loss of $18.1 billion with $16.8 billion impairment charge

Royal Dutch Shell PLC posted a second-quarter 2020 loss attributable to shareholders of $18.1 billion, which included an impairment charge of $16.8 billion post-tax ($22.3 billion pre-tax).

The company said late June that it would write down the value of its oil and gas assets by up to $22 billion after the coronavirus crisis (COVID-19) hit fuel demand and weakened the outlook for energy prices (OGJ Online, June 30, 2020).

Making up the impairments were the integrated gas segment with $8.2 billion ($11.2 billion pre-tax), mainly relating to the QGC Integrated Gas project in Australia and Prelude floating LNG in Australia; the upstream segment with $4.7 billion ($6.3 billion pre-tax), mainly relating to unconventional assets in North America, offshore assets in Brazil and Europe, a project in Nigeria (OPL245), and an asset in the US Gulf of Mexico; the oil products segment with $4.0 billion ($4.9 billion pre-tax), mainly relating to refineries in Europe and North America; and the corporate segment with $5 million ($9 million pre-tax).

Second-quarter 2020 results reflected lower realized prices for oil, LNG and gas, lower realized refining margins, oil products sales volumes and higher well write-offs compared with second-quarter 2019, the company reported July 30. The results were partly offset by very strong crude and oil products trading and optimization results as well as lower operating expenses.

Adjusted earnings were $600 million for the quarter.

Cash flow from operating activities for second-quarter 2020 was $2.6 billion, which included negative working capital movements of $4 billion. Cash flow from investing activities for the quarter was an outflow of $2.3 billion, driven mainly by capital expenditure, partly offset by proceeds from divestments.

Segment breakdown

The upstream segment recorded an earnings loss for the quarter of $6.7 billion. Compared with second quarter-2019, total production decreased by 7%, mainly due to the challenging macroeconomic environment, 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 favorable timing of entitlement liftings.

The integrated gas segment recorded a quarterly loss of $7.96 billion with adjusted earnings of $400 million. Compared with second-quarter 2019, total production decreased by 2% mainly due to more maintenance activities in Australia and lower demand, partly offset by the transfer of the Rashpetco operations in Egypt from the upstream segment. LNG liquefaction volumes decreased mainly as a result of cargo timing.

The oil products segment’s second quarter loss was $3.02 billion with adjusted earnings of $2.4 billion, reflecting strong contributions from crude and oil products trading and optimizations well as lower operating expenses. This was partly offset by lower realized refining margins and lower marketing sales volumes due to the weak macroeconomic environment and the COVID-19 pandemic.

The chemicals segment recorded second-quarter earnings of $164 million. This included redundancy and restructuring costs of $30 million. Compared with second-quarter 2019, chemicals adjusted earnings of $206 million reflected lower operating expenses, partly offset by lower realized margins due to chemicals downcycle conditions compounded by the COVID-19 pandemic.

Outlook

The company’s third quarter outlook provides ranges for operational and financial metrics based on current expectations which are subject to change in the light of current evolving market conditions.

Integrated gas production is expected to be 820,000-880,000 boe/d. LNG liquefaction volumes are expected to be 7.6-8.2 million tonnes. Due to price-lag in oil-linked LNG term contracts, the impact of low oil prices is expected to become more significant in the third quarter. Upstream production is expected to be 2.1-2.4 million boe/d. Refinery utilization is expected to be 68-76%. Oil products sales volumes are expected to be 4,000-5,000 thousand b/d. Chemicals manufacturing plant utilization is expected to be 78-88%. Chemicals sales volumes are expected to be 3.6-3.9 million tonnes. Corporate adjusted earnings are expected to be a net expense of $800-875 million in third-quarter 2020 and a net expense of $3.2-3.5 billion for full-year 2020.