Royal Dutch Shell (RDSB) has followed BP (BP) and dropped its oil price forecasts for the next few years, leading to a $15bn-$22bn (£12bn-18bn) writedown in its June quarter results. A more bearish shift has also taken place in its refining margin estimates, which the company said would be down 30 per cent in the longer term.
The impairment comes from the change in assumptions for the medium term. Shell had previously set its balance sheet price forecasts at $60/bbl for 2020, 2021 and 2022. These have now dropped down to $35/bbl, $40/bbl and $50/bbl. Its gas forecasts have also come down for 2020 and 2021.
On top of the oil and gas price revisions, Shell said the $3bn-$7bn cut to the value of its refining assets had come from its “strategy to reshape and focus its refining portfolio to support the decarbonisation of its energy product mix”. The company announced it would aim for net zero carbon emissions by 2050 in April.
Shell said gearing could climb by 3 percentage points after impairments plus pension reevaluations. As of 31 March, gearing was at 29 per cent. It acted dramatically in April in response to the oil price crash, cutting the dividend for the first time in 70 years, taking its yield down to under 4 per cent, and reducing spending by $5bn.
Beyond the impairment, the new forecasts raise the spectre of Shell pausing project development and existing assets falling out of profitability. The major impairment in the integrated gas division came from projects that were commissioned at $100/bbl, according to Jefferies analyst Jason Gammel.
Shell guided to higher production in gas and oil for the June quarter, with 2.3-2.4m barrels of oil equivalent per day (boepd) production for the upstream segment and 880-910,000boepd for integrated gas. The company said the higher oil production would have little impact on earnings because of the weak oil and gas prices.
