Shell Warns of $22bn in Q2 Charges
Shell warned on June 30 it would book up to $22bn in impairments in the second quarter, after cutting its forecasts for oil and gas prices. The announcement comes after rival BP also warned earlier this month it would take up to $17.5bn in charges after lowering its price assumptions.
Shell told investors it had reviewed a significant portion of its business given the impact of the coronavirus crisis and the "ongoing challenging commodity price environment."
The Anglo-Dutch major expects Brent to sell at $35/b in 2020, rising to $40 in 2021 , $50 in 2022 and $60 in 2023. Its long-term guidance is $60/b. BP, in comparison, said it expected oil to average only $55/b between 2021 and 2050.
Shell sees Henry Hub gas trading at $1.75/mn Btu in 2020, $2.5 in 2021 and 2022, $2.75 in 2023 and $3 in the long term. The company has also lowered its forecast for long-term refining margins by 30%.
"Based on these reviews, aggregate post-tax impairment charges in the range of $15 to $22bn are expected in the second quarter," Shell said, noting that these charges would be non-cash. They include $8-9bn in impairments relating to Shell's integrated gas segment, primarily in Australia, $4-6bn in upstream charges mostly in Brazil and North America shales, and $3-7bn at the company's oil products division.
Shell added it expected production at its integrated gas division to average between 880,000 and 910,000 barrels of oil equivalent/day in April through June. LNG production is expected to total 8.1-8.5mn mt.
"More than 90% of our term contracts for LNG sales in 2019 were oil price linked with a price-lag of typically 3-6 months," Shell said. "Consequently, the impact of lower oil prices on LNG margins became more prominent from June onwards."
Upstream production will come to between 2.3-2.4mn boe/d during the second quarter, Shell forecast, warning that the segment was expected to book a loss. Oil product sales are seen averaging 3,500-4,500 boe/d, with refinery utilisation coming to between 67-71%. Chemical sales are expected at 3,400-3,700 boe/d, with plant utilisation at 3.4-3.7mn mt.