01
Jul

Shell cuts its valuation $22 billion as it battles the impacts of the coronavirus on the oil industry

  • Oil major Shell says it is writing down the value of its assets by up to $US22 billion as it adjusts to oil’s historic crash in recent months.
  • Shell said it expects oil prices to level at $US50 a barrel in 2022, versus an initial prediction of $US60 a barrel.
  • Earlier this month, oil major BP slashed its valution by almost $US18 billion.
  • Oil prices tumbled in March due to a price-war between Saudi Arabia and Russia, and fell further thanks to a lack of demand due to COVID-19.
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Oil major Shell will slash up to $US22 billion of the value of its assets as the company copes with falling oil prices.

In a second quarter update, the oil major said on Tuesday: “Shell is announcing today a revised long-term commodity price and margin outlook, which is expected to result in non-cash impairments in the second quarter results.”

Shell said aggregate post-tax impairment charges in the range of $US15 to $US22 billion are expected in the second quarter.

This is the breakdown of the write-downs Shell expects:

  • Integrated Gas: $US8-9 billion.
  • Upstream: $US4-$US6 billion
  • Oil Products: $US3-$US7 billion across the refining portfolio.

Earlier this month, oil major BP slashed its valuation by almost $US18 billion as it adjusts to oil’s pandemic era new normal.

BP said its transformed price outlook is based on the likelihood of a global transition toward carbon-efficient fuels leading to a “Paris-consistent world” – referencing the Paris climate agreement – and the ongoing impact of the pandemic.

Shell said it now expects oil prices to level at $US50 a barrel in 2022, versus an initial estimate of $US60 a barrel.

The company said it will take until 2023 for long-term oil prices to level at $US60 a barrel, and gas to trade at $US3.

Brent oil, the international benchmark is currently trading at around $US41 per barrel.

Oil prices tumbled in March when Saudi Arabia kicked off a price-war with Russia, and fell further due to lower demand during the pandemic.

US oil West Texas Intermediate even briefly turned negative in April due to lack of storage space, particularly at a key hub in Cushing, Oklahoma.

Prices have recovered since OPEC production cuts have taken place, but both benchmarks are still well below their historical levels.

 

Extracted from Business Insider Australia