Shell plans to reverse up to $4.5bn in oil and gas writedowns
Move comes as refining margins almost triple, boosted by recovering global demand and a lack of refining capacity
07 July 2022 - 16:45
byRon Bousso
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London — Shell aims to reverse up to $4.5bn in writedowns on oil and gas assets after it raised its energy prices outlook after Russia’s invasion of Ukraine.
In an update before second quarter results on July 28, Shell said its refining margins almost tripled over the period, boosted by recovering global demand from the pandemic, a lack of refining capacity and lower fuel exports from Russia.
Earnings from oil and refined products trading are expected to be strong in the quarter but lower than the first quarter of 2022, Shell said.
Shell’s indicative refining margin rose in the second quarter to $28.04 per barrel from $10.23 a barrel in the first quarter and $4.17 a year earlier.
Shell shares were up 0.6% at 10.50am, significantly lower than the 2.4% gains to the broader energy index.
The company, which posted a record quarterly profit of more than $9bn in the first quarter, said its cash flow in the second quarter was hit by an outflow of about $6bn. It said “prevailing volatility” in the market will hit cash flows.
“We see the statement as neutral given a number of offsetting impacts to results, with the main uncertainty being around the magnitude of working capital outflows,” RBC Capital Markets analyst Biraj Borkhataria said in a note.
Oil and gas prices remained elevated in the quarter, with benchmark Brent crude averaging about $114 a barrel.
“In the second quarter 2022, Shell has revised its mid and long-term oil and gas commodity prices reflecting the current macroeconomic environment as well as updated energy market demand and supply fundamentals,” it said.
Shell increased its assumed price for Brent to $80 a barrel in 2023, up from $60 in its 2021 annual report. For 2024 and 2025, the Brent price was increased to $70 a barrel compared with $60. The long-term price was $65, compared with $63.
The upgrade will result in post tax impairment reversals of $3.5bn to $4.5bn. Shell wrote down more than $22bn in 2020 after the collapse in oil prices due to the pandemic.
Shell said it completed its $8.5bn share buyback programme during the second quarter.
Shell’s oil and gas production was expected to be up to 2.93-million barrels of oil equivalent per day in the quarter, its lowest in at least seven years, due to high field maintenance.
Shell, the world’s largest trader of liquefied natural gas (LNG), said its quarterly LNG production is expected to be in a range of 7.4-million to 8-million tonnes.
The figure reflects the removal of LNG volumes from the Sakhalin-2 plant in eastern Russia that Shell plans to exit.
Shell’s larger rival, ExxonMobil, last week signalled that skyrocketing margins from fuel and crude sales could generate a record quarterly profit.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Shell plans to reverse up to $4.5bn in oil and gas writedowns
Move comes as refining margins almost triple, boosted by recovering global demand and a lack of refining capacity
London — Shell aims to reverse up to $4.5bn in writedowns on oil and gas assets after it raised its energy prices outlook after Russia’s invasion of Ukraine.
In an update before second quarter results on July 28, Shell said its refining margins almost tripled over the period, boosted by recovering global demand from the pandemic, a lack of refining capacity and lower fuel exports from Russia.
Earnings from oil and refined products trading are expected to be strong in the quarter but lower than the first quarter of 2022, Shell said.
Shell’s indicative refining margin rose in the second quarter to $28.04 per barrel from $10.23 a barrel in the first quarter and $4.17 a year earlier.
Shell shares were up 0.6% at 10.50am, significantly lower than the 2.4% gains to the broader energy index.
The company, which posted a record quarterly profit of more than $9bn in the first quarter, said its cash flow in the second quarter was hit by an outflow of about $6bn. It said “prevailing volatility” in the market will hit cash flows.
“We see the statement as neutral given a number of offsetting impacts to results, with the main uncertainty being around the magnitude of working capital outflows,” RBC Capital Markets analyst Biraj Borkhataria said in a note.
Oil and gas prices remained elevated in the quarter, with benchmark Brent crude averaging about $114 a barrel.
“In the second quarter 2022, Shell has revised its mid and long-term oil and gas commodity prices reflecting the current macroeconomic environment as well as updated energy market demand and supply fundamentals,” it said.
Shell increased its assumed price for Brent to $80 a barrel in 2023, up from $60 in its 2021 annual report. For 2024 and 2025, the Brent price was increased to $70 a barrel compared with $60. The long-term price was $65, compared with $63.
The upgrade will result in post tax impairment reversals of $3.5bn to $4.5bn. Shell wrote down more than $22bn in 2020 after the collapse in oil prices due to the pandemic.
Shell said it completed its $8.5bn share buyback programme during the second quarter.
Shell’s oil and gas production was expected to be up to 2.93-million barrels of oil equivalent per day in the quarter, its lowest in at least seven years, due to high field maintenance.
Shell, the world’s largest trader of liquefied natural gas (LNG), said its quarterly LNG production is expected to be in a range of 7.4-million to 8-million tonnes.
The figure reflects the removal of LNG volumes from the Sakhalin-2 plant in eastern Russia that Shell plans to exit.
Shell’s larger rival, ExxonMobil, last week signalled that skyrocketing margins from fuel and crude sales could generate a record quarterly profit.
Reuters
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