Shell signage stands outside a gas station in Hook, England on Jan. 20, 2016.ADRIAN DENNIS/AFP/Getty Images
Royal Dutch Shell PLC avoided its first quarterly loss in recent history, helped by a booming trading business, but announced nearly US$17-billion in impairment charges reflecting a pessimistic outlook for oil and gas prices.
Shell had warned last month it was set to slash the value of its oil and gas assets by up to US$22-billion as the coronavirus crisis hollowed out energy demand.
“Shell has delivered resilient cash flow in a remarkably challenging environment,” chief executive Ben van Beurden said in a statement on Thursday.
The Anglo-Dutch company warned, however, of the continued impact of the pandemic on oil and natural gas prices and sales in the third quarter.
Shell and its peers have historically weathered downturns owing to their large refining operations, whose profit margins are boosted by lower crude oil prices and stronger fuel demand.
But in this crisis, the drop in oil and gas prices was coupled with an unprecedented drop in global demand.
“Demand will take a long time to recover if it recovers at all,” Mr. van Beurden told reporters.
Shell expects aviation fuel consumption to recover to 50 per cent of precrisis levels by the end of 2020, he said.
Shell has responded to the falling demand by cutting its dividend for the first time since the Second World War and cutting planned spending by US$5-billion to a maximum of US$20-billion this year.
It booked an overall impairment charge of US$16.8-billion in the quarter after lowering its short-term oil and gas price outlook in the wake of the epidemic. The charge is at the lower end of its previous guidance.
Shell’s shares were down 5 per cent.
TRADING SURGES
Restrictions on movement globally to limit the spread of the coronavirus have knocked energy demand, with benchmark Brent oil prices falling below US$30 a barrel in the second quarter, down by more than half from a year earlier.
Shell’s adjusted earnings in the second quarter, which exclude special items and are adjusted to cost of supply, fell to US$600-million from US$3.5-billion a year ago, beating analysts forecasts of a US$674-million loss.
The earnings “reflected very strong contributions from crude and oil products trading and optimization as well as lower operating expenses,” Shell said.
Refining and trading operations earnings jumped to US$1.5-billion, nearly 30 times higher than a year earlier, even as refinery crude oil processing rates fell by a quarter.
Shell is also the world’s largest oil and gas trader. High volatility in oil prices throughout the quarter allowed nimble traders to make large profits by betting on price movements and storing fuel to sell them at higher prices in the future.
Shell, the world’s largest retailer with more than 40,000 petrol stations, also saw a 39-per-cent drop in fuel sales, it said.
WRITEDOWNS
Shell’s oil and gas production division, or upstream, made a loss of US$6.7-billion as production declined by 7 per cent from a year earlier to 2.415 million barrels of oil equivalent per day.
The upstream loss included a post-tax impairment charge of US$4.7-billion mainly related to unconventional shale assets in North America, assets offshore in Brazil and Europe, and the OPL 245 block in Nigeria which is at the heart of a bribery court case in Italy.
Shell’s liquefied natural gas (LNG) sales declined by 7 per cent in the quarter. The Integrated Gas division wrote down US$8.2-billion, mainly related to the Queensland Curtis LNG and Prelude floating LNG operations in Australia.
Shell’s net debt rose to US$77.8-billion and its debt-to-equity ratio, or gearing, was up by 2.8 per cent to 32.7 per cent after the impairments.
Shell also plans to announce a major restructuring by the end of the year.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.