* Shell slashes oil and gas price outlook
* Expects 40% drop in fuel sales in second quarter
* Writedowns include Australian LNG facilities
* Shares down more than 4%
(Adds comments, details, updates shares)
By Ron Bousso
LONDON, June 30 (Reuters) - Royal Dutch Shell plans
to slash the value of its oil and gas assets by up to $22
billion after the coronavirus crisis hit demand for fuel and
weakened the outlook for energy prices, the Anglo-Dutch energy
company said on Tuesday.
The writedown announcement came after Shell cut its forecast
for energy prices into 2023 on expectations that sales will only
recover slowly after the pandemic, adding to the company's
already bleak longer-term outlook for fossil fuel demand.
Shell's move follows similar steps by other major energy
companies such as BP, which plans to cut the value of its
assets by up to $17.5 billion following the hit to fuel sales
from global travel restrictions to prevent the virus spreading.
Shell, which has a market value of $126.5 billion, said in
an update ahead of second-quarter results due on July 30 that it
would take an aggregate post-tax charge of $15 billion to $22
billion because of the writedowns.
The charges relate to large liquefied natural gas
(LNG)operations in Australia, including the Prelude floating LNG
facility, the world's biggest, as well as oil and gas production
assets in Brazil and U.S. shale basins.
Shell's shares traded in London were down 3.7% by 1350 GMT.
Credit Suisse analyst Thomas Adolff said the second quarter
would be the toughest for many companies and Shell had sent a
"wake up call".
Shell, the world's largest fuel retailer, said it expected a
40% drop in sales in the second quarter from a year earlier to
about 4 million barrels per day (bpd), although that was higher
than its earlier forecast of 3.5 million bpd.
Its oil and gas production was expected to average 2.35
million bpd in the three months through June, down from 2.71
million in the first quarter of 2020.
LOWER OIL PRICES
Shell responded to the pandemic by cutting its dividend for
the first time since World War Two and lowering planned spending
this year by $5 billion to a maximum of $20 billion.
Shell Chief Executive Ben van Beurden also laid out a plan
in April to reduce Shell's carbon emissions to net zero by 2050
by shifting to renewables and power markets. The company aims to
announce restructuring measures by the end of 2020.
Shell said on Tuesday it had cut its expected average
benchmark Brent crude price for 2020 to $35 a barrel from $60,
and cut its 2021 and 2022 Brent forecasts to $40 and $50,
respectively, also down from $60 a barrel.
It said its long-term oil price outlook remained $60 a
barrel, just above BP, which cut its long-term Brent forecast to
$55 from $70. Other rivals still have higher price projections.
The Anglo-Dutch company also cut its long-term refining
profit margin outlook by 30% and set its long-term natural gas
price at $3 per million British Thermal Units.
Shell's integrated gas business will account for $8 billion
to $9 billion of the writedowns while its exploration division
will account for $4 billion to $6 billion. Refining and
marketing will account for another $3 billion to $7 billion.
The charges will raise Shell's debt-to-equity ratio, or
gearing, by 3 percentage points. Its gearing was 28.9% at the
end of March.
Shell's write downs "are not surprising and do not
materially change our view of Shell's creditworthiness because
they will not directly impact Shell's cash flow generation,"
said Moody's Investors Service analyst Sven Reinke.
(Reporting by Ron Bousso; Editing by Louise Heavens, Edmund
Blair and Barbara Lewis)