Shell has warned that the value of its oil and gas assets may fall by up to $22bn (£16bn) in 2020 after shaving up to $4.5bn from its portfolio in the final quarter of the year.
The oil company ended any hopes for a brighter end to 2020 for shareholders with the announcement of another writedown. Shell blamed the move on the weaker outlook for global oil demand owing to coronavirus restrictions on travel and poor economic growth.
It also said the fourth-quarter results for its oil products division, due in early February, would be “significantly lower compared with the third quarter”.
The Anglo-Dutch oil firm’s latest writedowns could bring its total impairments to $22bn for 2020, which has been one of the worst for big oil companies on record due to the sharp drop in demand for crude and fuels.
Shell’s FTSE 100-listed shares traded 6% lower on Monday at £12.98, down from highs of more than £23 in the first week of the year.
The oil market price also tumbled by 4%, or $3 a barrel, to $50.26 a barrel as fears over the impact of a new strain of the coronavirus on oil demand took hold of global markets. The slump brought an end to the steady rise in oil markets in recent weeks which helped drive prices back above the $50 a barrel mark for the first time since March last week.
Biraj Borkhataria, an analyst at RBC Capital, said Shell’s profit warning was “disappointing, particularly in the context of the strong run Shell has had in recent weeks”.
Shell revealed a modest return to profit in the third quarter after reporting better than expected financial results, and promised investors a “new era of dividend growth” as it switches its focus away from fossil fuels and towards clean energy alternatives.
The results were a rare bright spot for Shell shareholders in 2020 after the company reported an $18bn loss for the second quarter of the year, announced that it would cut 9,000 roles from the company, and slashed the dividend for the first time since the second world war.
Shell, once the FTSE 100’s biggest dividend payer, cut its dividend from 47 cents to 16 cents a share in April because of the “crisis of uncertainty” facing oil companies amid the coronavirus pandemic.
The company also revised down its outlook for oil market prices to average about $35 a barrel in 2020, and $40 next year, before rising to an average of $50 by 2022. The forecasts were sharply below the oil prices expected by Shell only three months ago, which averaged about $60 a barrel for each year to 2022.
The coronavirus has wreaked havoc on big oil companies this year by causing one of the fastest drops in demand in history. In response ministers from the world’s largest oil producing countries agreed to cut their production to prevent a market collapse.
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