Oil giant Shell today warned that it would write off up to $22bn (£17.9bn) from the value of its assets after the spring’s oil price crash led the supermajor to adjust its long-term price forecasts.
In a trading update, the Anglo-Dutch firm said that impairment charges of between $15bn to $22bn were expected in the second quarter.
Rival BP made a similar announcement earlier this month, saying it would write off up to $17.5bn as a result of the market’s implosion.
The coronavirus pandemic has had a devastating impact on the global oil industry, with majors making sweeping job cuts and trimming spending to cope with the collapse in demand.
Shell, which has already announced that a total restructuring will take place by the end of the year, said it would “continue to adapt to make sure the business remains resilient”.
For 2020, it set its new expected price at $35, which increases incrementally to $60 by 2023. It added that $60 was its prediction for long-term pricing.
Each oil price movement of $10 costs the firm $6bn, Shell confirmed.
Shell also said that refining margins would slip by 30 per cent, accounting for $3bn to $7bn of the impairments.
Its Henry Hub gas prices are also set to decline, generating $8bn to $9bn in charges.
The price adjustment is the latest in a string of major announcements the firm has made in the last couple of months as it seeks to transform its business model for the net zero emissions transition.
With the pandemic now expected to accelerate the push towards a zero carbon economy, chief executive Ben van Beurden has already set out plans to make Shell carbon neutral by 2050.
The firm also cut its dividend for the first time since the Second World War after historic market volatility sent Brent crude oil to pre-millennium levels.
Helah Miah of the Share Centre said that the price adjustments showed that the decision to cut its payouts was the right one.
“Shell was early in recognising the impact of the crisis on the energy market and took immediate action to cut back on costs and dividend pay outs, and this morning’s announcement will cement the view that dividends will take longer to get back to their pre-crisis level than originally thought.
“I believe that given the circumstances Shell is on the right and conservative path in managing its assets and capital distributions in the crisis environment”, he said.