“Left in the Ground”. Another Major Oil Write-Down

July 1, 2020

Shell follows BP in massive write down of fossil fuel assets.
The Wall Street Journal’s assessment, below, is stunning.

Large amounts of oil and gas are likely to be left in the ground.

AP:

LONDON (AP) — Energy producer Royal Dutch Shell warned Tuesday it will slash the value of its assets by $22 billion to account for lower oil and gas prices amid the COVID-19 pandemic.

The company predicted the write-down for the quarter and said it continues “to adapt to ensure the business remains resilient” in challenging times. Earlier this month, its competitor BP, also cut the value of its own assets by up to $17.5 billion.

Shell predicted prices for Brent crude, the international oil benchmark, would be at $50 dollars a barrel in 2022. Earlier it had predicted a price of $60 a barrel. On Tuesday, it was trading near $41 a barrel.

Wall Street Journal:

The write-down follows one by BP PLC on a similar scale earlier this month. Lower oil and gas prices brought on by the pandemic and uncertainty over the pace of the transition to lower-carbon energy have caused major oil companies to question the value of their reserves. Exxon Mobil Corp. has resisted pressurefrom accountants to write down its assets. 

The reassessment of asset values by two of the energy sector’s biggest companies is about more than a response to the pandemic and its impact on oil and gas prices, said Luke Parker, vice president, corporate analysis at consulting firm Wood Mackenzie. The actions signal that large amounts of oil and gas are likely to be left in the ground.

“It’s about fundamental change hitting the entire oil and gas sector,” Mr. Parker said. “Within this write down, Shell is giving us a message about stranded assets, just like BP did a few weeks ago.”

Energy companies’ earnings are under pressure with oil prices having fallen by a third since the start of the year. Shell’s write-down comes as the industry cuts costs and reins in investments in the face of the health crisis, which has curbed global demand for crude oil by nearly a third in April, according to International Energy Agency estimates. 

In addition, companies including Shell, BP and Chevron Corp. are reducing their workforces

In April, Shell cut its dividend for the first time since World War II, upending investors’ expectations that major oil companies would provide reliable dividends.

On Tuesday, Shell’s shares traded down 3.2%. Shell’s largest write-downs come from its gas business, where it faces a charge of up to $9 billion, including reductions to the value of the Prelude and Queensland Curtis liquefied natural gas projects in Australia.

“With the low oil price and low LNG price I think Shell is choosing to take its time to get that project right,” said Mr. Toleman.

The write-down of the Prelude LNG project—the world’s largest floating LNG facility—is driven by factors including cost overruns and a slower startup than what was planned, said Daniel Toleman, analyst at consulting firm Wood Mackenzie. The project shipped its first LNG cargo a year ago following delays and Shell said production has been halted since February. 

Shell said Tuesday that its gearing level—net debt as a percentage of total capital—is expected to rise by up to 3% because of lower asset values. In April, Shell’s gearing was 29%, above the company’s target of 25%.

Fox Business:

Royal Dutch Shell PLC is writing down the value of its assets by up to $22 billion because of lower energy prices following the demand-sapping coronavirus pandemic.

The write-down follows that by BP PLC, which was on a similar scale earlier this month. Lower oil and gas prices brought on by the pandemic and uncertainty over the pace of the transition to lower carbon energy have caused major oil companies to question the value of their reserves.

Shell’s largest write-downs come from its gas business, where it faces a charge of up to $9 billion, including reductions to the value of the Prelude and Queensland Curtis liquefied natural gas projects in Australia.

The energy industry’s earnings are under pressure and some companies are having to borrow to pay dividends. In April, Shell cut its dividend for the first time since World War II, upending investors’ expectations that major oil companies would provide reliable dividends.

UPDATE:

7 Responses to ““Left in the Ground”. Another Major Oil Write-Down”

  1. Sir Charles Says:

    Exxon, BP, Chevron and Shell have exaggerated their commitment to renewable energy and instead are planning to expand fossil fuel production by 20 to 35 percent through 2030, a new lawsuit against the companies says.

    => Minnesota and the District of Columbia Allege Climate Change Deception by Big Oil

  2. rhymeswithgoalie Says:

    I found Forbes video report’s bankruptcy commentary (~1:25) by Ken Colman interesting in its description of how this situation differs from the downturns in the past.

  3. Keith McClary Says:

    Where is the oilfield with the closely spaced pumpjacks at 3:01 in the video?

  4. redskylite Says:

    Meanwhile Norway are hungry for more exploitation:
    ===================================
    “Regular access to new exploration areas is crucial to maintaining activity on the Norwegian continental shelf,” Bru said.

    With North Sea oil production having peaked, interest in the frontier areas of the Norwegian Continental Shelf have increased.

    https://www.petroleumnews.com/pntruncate/759521809.shtml

    • redskylite Says:

      Full steam ahead off the Norwegian coast:

      ——————————————————————

      “The Norwegian offshore safety regulator PSA Norway has in the past two days approved three offshore drilling projects in the North Sea and the Norwegian Sea.

      On Wednesday, the PSA gave consents for ConocoPhillips’ Warka and Wellesley Petroleum’ Schweinsteiger exploration wells, and on Thursday, Equinor was granted permission to drill at the 7-Fjell prospect location.

      ConocoPhillips will use the Leiv Eiriksson semi-submersible drilling rig at the Warka location in the Norwegian Sea. The drilling of the well, formally named 6507/4-1 will take 87 days to complete. The Warka prospect sits in a water depth of 400 meters.”

      https://www.oedigital.com/news/479864-safety-regulator-approves-three-drilling-projects-off-norway


  5. Reblogged this on The Most Revolutionary Act and commented:
    Energy companies’ earnings are under pressure with oil prices having fallen by a third since the start of the year. Shell’s write-down comes as the industry cuts costs and reins in investments in the face of the health crisis, which has curbed global demand for crude oil by nearly a third in April, according to International Energy Agency estimates.


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: