(Alliance News) - Royal Dutch Shell PLC on Tuesday warned that it will take an impairment charge of up to USD22 billion in the second quarter of 2020 due to the significant disruption to energy markets caused by the Covid-19 pandemic.
Royal Dutch Shell A shares were down 2.1% at 1,312.20 pence each, while B class shares were trading 1.8% lower at 1,248.40p. Rival BP PLC was down 1.6% at 309.75p in a negative read-across.
Shell said that a more sombre view on oil and gas prices and refining margins means it will take post-tax impairments of USD15 billion to USD22 billion in the second quarter of 2020. It said there will be no cash impact from these impairments.
BP also had warned shareholders earlier this month that it would write down the value of its assets by between USD13.0 billion and USD17.5 billion.
Shell's Integrated Gas division is expected to record USD8 billion to USD9 billion in impairment charges. Upstream is predicted to record USD4 billion to USD6 billion in charges and the Oil Products division between USD3 billion to USD7 billion.
The impairments are expected to have a pretax impact of USD20 billion to USD27 billion.
The impairment charges stem from Shell's revised view of mid-to-long-term commodity prices and refining margins.
The Anglo-Dutch firm, which is London's largest company by market capitalisation, expects Brent oil to average USD35 a barrel in 2020, rising to USD40 in 2021, USD50 in 2022 and USD60 in 2023. It expects USD60 to be the long-term average.
Brent oil was quoted at USD41.54 a barrel on Tuesday morning, up slightly from USD41.24 a barrel at the London equities close Monday. At the start of 2020, oil traded around USD66 a barrel but a price war between oil producing countries and the impact of the health crisis on demand caused a sharp downturn in prices.
Henry Hub gas prices are estimated by Shell at USD1.75 per million British Thermal units in 2020, USD2.5 in 2021 and 2022, USD2.75 in 2023 and USD3.0 in longer term.
Shell also revised down by 30% its expectation for long-term refining margins.
Gearing - net debt as a percentage of total capital - is expected to increase by up to 3% due to the impairments.
"Given the impact of COVID-19 and the ongoing challenging commodity price environment, Shell continues to adapt to ensure the business remains resilient," it said.
By Tapan Panchal; tapanpanchal@alliancenews.com
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