A record writedown on the value of its oil and gas assets because of the collapse in the global prices of oil and gas because of the coronavirus forced Royal Dutch Shell has to report a deep financial loss.
For the second quarter 2020, a net loss of $18.3bn was reported by the Anglo-Dutch oil giant in sharp contrast to a net profit of $3bn in the same period a year ago and a net profit of $2.7bn in the first quarter of 2020.
But the oil trading business of the company helped it to avert an expected worst set of quarterly financial results on record. That helped the company to prop up the income of the company in face of the 21 year old low oil prices.
For the second quarter, Shell reported an adjusted net income of $638m which was 82 per cent lower for the same period a year ago. Analysts had predicted a loss of $664m.
The company had delivered “resilient” cash flows in “a remarkably challenging environment”, said Ben van Beurden, Shell’s chief executive.
Despite this, the company was forced to note a record downgrade to the value of its oil and gas assets via a post-tax impairment charge of $16.8bn and revised down its forecasts for global oil prices because of the novel coronavirus pandemic.
The stake of the group in an offshore oilfield in Nigeria, owned in partnership with Italian oil company Eni, was a part of the writedown. That oilfield is a subject of an ongoing corruption court case in Italy.
For the next three years, global oil prices will remain well below average 2019 levels, expects Shell. It has forecast oil prices to average $35 a barrel in 2020, rising to $40 in 2021, $50 in 2022 and $60 in 2023. The average oil price last year was $64.36 a barrel.
The French oil company Total has also been hit by the falling oil price forecasts. The company announced an $8bn writedown on the value of its assets, which included a writedown of $7bn from its Canadian oil sands.
However a net profit of $126m was reported by Total for the second quarter, even though it was 96 per cent lower than the same period a year ago. The company has however decided not to reduce or cancel its shareholder dividends.
Previously, its shareholder dividend was slashed for the first time since the Second World War by Shell while warning that the company was facing a “crisis of uncertainty” after the historic collapse in global oil prices.
The “monumental” decision by the company to reduce dividends by 66 per cent this year, bringing down the dividend to $5bn from $15bn last year, was a difficult one for Shell to take but was deemed necessary to enhance the company’s financial resilience, Van Beurden said.
(Adapted from TheGuardian.com)