Shell provided an update on its second quarter 2020 results that will see the oil major record post-tax impairments of between $15 billion and $22 billion due to revising its mid and long-term price and refining margin outlook as a result of the COVID-19 pandemic.
In a statement, Shell said that: "Given the impact of COVID-19 and the ongoing challenging commodity price environment, Shell continues to adapt to ensure the business remains resilient. In light of this, Shell is announcing a revised long-term commodity price and margin outlook, which is expected to result in non-cash impairments in the second quarter results."
Shell has reviewed a significant portion of Shell’s Upstream, Integrated Gas and Refining tangible and intangible assets. Based on these reviews, Shell said that the aggregate post-tax impairment charges will range between $15 to $22 billion in the second quarter.
Shell provided a 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
Angus Rodger, a director with Wood Mackenzie’s upstream research team, said: “The major oil companies are going through a process of reassessing long-term oil price assumptions and investment hurdle rates as a result of the oil price crash and the coronavirus."
Luke Parker, vice president, corporate analysis at Wood Mackenzie, said: “The impairment Shell has announced is about more than an accounting technicality, or an adjustment to near-term price assumptions. It’s about fundamental change hitting the entire oil and gas sector. Within this write down, Shell is giving us a message about stranded assets."