EnergyWatch

Shell books big impairment in Q1

The British-Dutch company books a big post-tax impairment due to the pandemic and oil price war. The coronavirus hit the company especially hard in March, Shell informs.

Photo: Sergei Karpukhin/Reuters/Ritzau Scanpix

Fossil energy supermajor Shell releases a first-quarter update Tuesday morning and informs that effects from the Covid-19 pandemic and the oil price war are mainly reflected in its March accounting, while the impact on figures from January and February are reported as "relatively small".

Nonetheless, Shell sees itself obliged to record post-tax impairment charges of USD 400-800 million for Q1'20.

Shell writes that, for every time the price of Brent falls by USD 10 per barrel, there are USD 6 billion less per year for its operational free cash flow post.

Although the company also notes that this trigger mechanism is normally used in connection with smaller price fluctuations like those seen as of late.

Oil prices have plummeted by more than 60 percent in recent months, and this development was only exacerbated by the pandemic and discord among OPEC+ members. European benchmark crude Brent trades as low as USD 23.20 per barrel.

Foresees substantial uncertainty

Last week, the situation prompted Shell to suspend its planned equity buyback program and present plans to cut operating costs by USD 3-4 billion next year and slash its Capex budget by at least USD 5 billion in 2020.

"As a result of Covid-19, we have seen and expect significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products. Furthermore, recent global developments and uncertainty in oil supply have caused further volatility in commodity markets," Shell writes in the update.

The company counts on extracting between 2,650 and 2,720 barrels of oil equivalent per day during Q1.

Shell also informs that it has entered a new agreement for a credit facility worth USD 12 billion on top of its existing debt of USD 10 billion.

English Edit: Daniel Frank Christensen

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