Collapsing oil prices and dim prospects of a rebound have led Shell (RDSB.L) to write-off billions of dollars on the value of its assets.
Shell said on Tuesday that it would make impairments on its assets of between $15bn (£12bn) and $22bn. It comes after the oil giant reassessed its long-term oil price forecasts to reflect “the expected effects of the COVID-19 pandemic and related macroeconomic, as well as energy market, demand and supply fundamentals.”
Shell now expects Brent crude to average $35 per barrel this year and only return to around $60 per barrel — where it started the year — by 2023.
Oil prices have collapsed over the last six months. The COVID-19 pandemic severely dented global fuel demand as flights were grounded and stay-at-home orders led to collapses in motoring and public transport usage. The Saudis and Russians also started a price war in March that flooded the market with supply and further depressed prices.
Market conditions were so stressed in April that US crude oil futures turned negative for the first time in history. Brent (BZ=F), the international oil benchmark, was trading near an 18-year low at the same time.
“Given the impact of COVID-19 and the ongoing challenging commodity price environment, Shell continues to adapt to ensure the business remains resilient,” Shell said in a statement.
Shell joins rival BP (BP.L) in writing down the value of its assets. BP earlier this month said it would write-off $17.5bn as a result of the oil price slump. The company is far more pessimistic than Shell and expects oil prices to only reach $55 a barrel by 2050.
Shell said Tuesday it expects to produce more oil this year than previously expected — between 2.3m and 2.4m barrels a day — but said this would have “a limited impact on earnings in the current macro environment”.
Shares in Shell slipped 0.2% in London on Tuesday morning.