July 15, 2020

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Oil major Shell to write down up to $22 billion of assets in second quarter

A detailed view of a Shell gas station sign showing the low price of $1.69 per gallon, the result of the coronavirus (COVID-19) outbreak on March 31, 2020 in Jacksonville, Fl.

David Rosenblum | Icon Sportswire | Getty Images

Oil giant Royal Dutch Shell said on Tuesday it will write down the value of its assets up to $22 billion in the second quarter, after revising down its long-term outlook for oil and gas prices.

It comes after the energy company announced in mid-April an ambition to reduce greenhouse gas emissions to net zero 2050.

Shell said in a statement to investors that it had reviewed a significant portion of its business given the impact of the coronavirus pandemic and the “ongoing challenging commodity price environment.”

It said it would take aggregate post-tax impairment charges in the range of $15 billion to $22 billion in the second quarter. 

This included a write-down of between $8 billion-$9 billion in its integrated gas unit, a $4 billion-$6 billion write-down in upstream assets, and a $3 billion-$7 billion write-down in oil products across its refining portfolio.

Shares of the Anglo-Dutch company were over 2.4% lower during early morning deals.

Earlier this month, U.K.-based energy giant BP also said it would incur non-cash impairment charges and write-offs in the second quarter, estimated to be in an aggregate range of $13 billion to $17.5 billion after tax.

Oil and gas price forecasts

Shell said it expected international benchmark Brent crude prices to average $35 a barrel in 2020, down from a previous forecast of $60.

The firm also lowered its Brent price forecast to $40 in 2021 and $50 in 2022, having previously said it expected prices to average $60 for each respective year. 

Brent crude futures traded at $41.39 on Tuesday morning, down around 0.7%, while U.S. West Texas Intermediate futures stood at $39.35, more than 0.8% lower. 

The energy giant also said it believes Henry Hub gas prices will average $1.75 per million British thermal units in 2020, before rising to $2.5 over 2021 and 2022, and $2.75 in 2023. 

Henry Hub is a natural gas pipeline located in Louisiana and serves as the official delivery location for futures contracts on the New York Mercantile Exchange.

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