Shell slumps to an $18 billion as it takes huge asset write-downs amid low oil prices and slumping demand

Reuters

  • Oil major Shell reported a net loss of $18.1 billion in Q2 compared to $3.2 billion net income in Q2 2019.
  • That was largely down to an almost $17 billion write down the company took on the value of its assets.
  • Shell had warned last month that it could take impairments of up to $22 billion.
  • Looking beyond the impairment driven loss, Shell said that it had adjusted earnings of $638 million, a drop of 82% from the same period last year.
  • Shell said “significant uncertainty in the macroeconomic condition” along with low oil prices could cause further weakness in the next few months. 
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Oil major Shell’s profits took a beating in the second quarter as an environment of low oil prices and volatility in energy markets caused profits to tumble. 

Shell posted a loss of $18.1 billion, a sharp swing from the $3.2 billion in income it posted in the second quarter of 2019.

That was largely down to an almost $17 billion write down the company took on the value of its assets.

The $18.1 billion loss included “an impairment charge of $16.8 billion post-tax ($22.3 billion pre-tax),” the oil giant said.

This was “as a result of revised medium- and longterm price and refining margin outlook assumptions in response to the COVID-19 pandemic and macroeconomic conditions as well as energy market demand and supply fundamentals.”

Shell had warned in a second quarter update at the end of last month that it would slash up to $22 billion of the value of its assets. 

At the time the oil major had predicted impairment charges in the range of $15 billion to $22 billion in the second quarter. 

Shell said in its earnings report: “As a result of COVID-19, there continues to be significant uncertainty in the macroeconomic conditions with an expected negative impact on demand for oil, gas and related products. Furthermore, recent global developments and uncertainty in oil supply have caused further volatility in commodity markets.”

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“The third quarter 2020 outlook provides ranges for operational and financial metrics based on current expectations, but these are subject to change in the light of current evolving market conditions,” Shell added. 

Shell’s gloomy forecast follows its decision to cut its dividend the first time since World War II, in its first quarter earnings report. 

Looking beyond the impairment driven loss, Shell said that it had adjusted earnings of $638 million, a drop of 82% from the same period last year.

Shell’s Chief Executive, Ben van Beurden, said: “Shell has delivered resilient cash flow in a remarkably challenging environment. We continue to focus on safe and reliable operations and our decisive cash preservation measures will underpin the strengthening of our balance sheet.” 

Shell’s shares didn’t move much on the earnings results, and was trading down around 1% as of mid-morning in Europe.

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Oil prices have been extremely volatile over recent months, partly due to lack of demand during the pandemic and also because of a price war that began between Saudi Arabia and Russia in March. 

Prices recovered in recent months due to OPEC production cuts and some reopening of economies. 

However, the future direction of oil prices is still casting a cloud of uncertainty for oil majors amid a resurgence of coronavirus cases. 

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