Royal Dutch Shell will slash up to $22bn from the value of its assets as the oil major warned coronavirus will deal a lasting blow to demand for energy products and the global economy.
The Anglo-Dutch group cut its oil and gas price outlook on Tuesday as it vowed to “adapt to ensure the business remains resilient”.
The company said in a statement that it will face a charge of between $15 billion and $22 billion in the second quarter, after reviewing chronic fallout from the deadly COVID-19 outbreak that crashed global demand for energy.
"In the second quarter of 2020, Shell has 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," the London-listed firm said.
"This has resulted in the review of a significant portion of Shell's upstream, integrated gas and refining assets."
The energy major added that the move also reflected a planned reshaping of refining activities as it seeks to move towards becoming carbon neutral by 2050.
Shell’s move follows a similar announcement by BP earlier this month, indicating growing awareness among the biggest companies in the sector that tens of billions of dollars’ worth of assets could be rendered uneconomic.
Energy executives and analysts increasingly believe that not only will the pandemic stall demand for oil and gas for a prolonged period, but the virus will only accelerate the pursuit of the Paris climate goals.
Shell said it expected Brent crude prices in 2022 at $50 a barrel versus $60 a barrel it had initially expected, and Henry Hub US gas prices at $2.5 per million British thermal units, down from $3.
After 2023, it expects long-term oil prices at $60 and gas at $3, in line with prior expectations.
Shell’s gas business will take the biggest impairment hit at $8-9bn followed by its oil exploration and production business at $4-6bn. It oil products and refining business will see charges of $3-7bn.
It is expected to increase gearing - defined by Shell as net debt as a percentage of total capital - by 3 per cent.
