Shell to take up to $22bn of impairments

Shell has followed in the footsteps of BP by announcing hefty impairment charges in its upcoming second-quarter results after lowering its outlook on oil and gas prices.

Shell said it expects to write down the value of its assets by $15bn-22bn on a post-tax basis. The impairments are being triggered not only by a revision to the firm's oil and gas price assumptions but also by changes to its outlook on refining margins. The revisions reflect "the expected effects of the Covid-19 pandemic and related macroeconomic as well as energy market demand and supply fundamentals", Shell said.

Shell's new Brent oil price assumptions are $35/bl for this year, $40/bl next year, $50/bl in 2022 and $60/bl in 2023. Last year, it assumed $60/bl in 2020-22 for impairment testing. It has also lowered its Henry Hub gas price assumptions for the next few years. Its long-term price outlooks for Brent and Henry Hub are $60/bl and $3/mn Btu in real terms.

The changed price outlook will result in $8bn-9bn of impairments in the firm's integrated gas division, mainly related to Australian LNG assets, and a further $4bn-6bn of upstream write-downs, largely associated with shale assets in North America and deepwater fields in Brazil.

"The upstream and integrated gas asset valuation updates, including of related exploration and evaluation assets, are largely driven by the change in long-term prices with some impacts due to a changed view on the development attractiveness," the company said.

The remaining $3bn-7bn of impairment charges relate to downstream assets, triggered by Shell revising down its assumptions for longer-term refining margins by about 30pc. The write-downs will be "across the refining portfolio" and reflect "Shell's strategy to reshape and focus its refining portfolio to support the decarbonisation of its energy product mix, leveraging assets and value chains in key markets", the company said.

Shell expects the impairments to push its net debt gearing up by 3 percentage points. The firm's gearing stood at about 29pc at the end of March. The write-downs are on a similar scale to the $13.5bn-17bn flagged up by BP two weeks ago.

By Konstantin Rozhnov