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Shell Is Taking Up to a $22 Billion Asset Writedown

By Howard Smith – Updated Jun 30, 2020 at 10:55AM

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After lowering its mid- and long-term energy price outlook, the company will take post-tax impairment charges of between $15 billion and $22 billion in the second quarter.

Energy giant Royal Dutch Shell (RDS.A) (RDS.B) has revised its outlook for energy prices and refining margin, leading it to predict an asset writedown of between $15 billion and $22 billion for the second quarter. The company cited the effects of the COVID-19 pandemic and the macroeconomic supply-and-demand picture. 

A similar outlook revision by BP (BP -0.64%) earlier this month led it to announce impairment charges and exploration write-offs of up to $17.5 billion for its second quarter. These announcements likely mean that a large amount of oil and gas will not be drilled, according to Luke Parker, vice president for corporate analysis at consulting firm Wood Mackenzie. Parker told The Wall Street Journal "within this writedown, Shell is giving us a message about stranded assets, just like BP did a few weeks ago." 

oil rigs agains sunset with fossil fuel chemistry symbols

Image source: Getty Images.

Shell says it now sees oil prices ranging from $35 per barrel in 2020, ramping up to $60 in 2023 and for the long term. It believes natural gas will slowly increase from $1.75 per million BTUs in 2020 to a long-term price of $3. BP had said that it sees average oil prices of $55 per barrel from 2021 to 2050, and natural gas averaging $2.90 per million BTUs in that period. 

Shell said its largest post-tax impairment charge, of up to $9 billion, will be on gas assets. Upstream asset writedowns of up to $6 billion will mostly come from Brazil and North American shale, and oil products of up to $7 billion will be from across its refining portfolio. 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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