Shell’s 2020 write downs could soar to $22 billion

Shell warned the market on Monday that it would book up to $4.5 billion more in post-tax charges in the fourth quarter, which would take the supermajor’s combined write-downs to over $22 billion in the year in which Big Oil significantly cut the value of their oil and gas assets.

Shell expects post-tax charges of between $3.5 billion and $4.5 billion in relation to impairments, asset restructuring, and onerous contracts in the fourth quarter, the company said in its Q4 2020 update note today. The charges will include partial impairment of the Appomattox asset in the U.S. Gulf of Mexico due to subsurface updates, charges in the oil products division, including such related to the announced transformation of the refinery portfolio, as well as charges from onerous contracts in the Integrated Gas division.

Earlier this year, Shell warned it could take as much as a $22-billion post-tax impairment charge for Q2, becoming the latest oil major warning of a massive write-down of its assets as it revised its price assumptions after the oil price crash.

The actual write-down for Q2 was $16.8 billion post-tax, at the lower end of the range provided. Shell reported for Q2 adjusted earning of $638 million, a whopping 82-percent plunge compared to the earnings for the second quarter of 2019, but well above analyst expectations for a loss, thanks to “very strong crude and oil products trading.”

The $16.8-billion write-down for Q2 adds to the $1-billion post-tax charge for Q3, and now the Q4 charge could take Shell’s total write-downs this year to $22.3 billion, if the Q4 charge is at the high end of the $3.5 billion-$4.5 billion guidance.

In other updates for Q4, Shell said on Monday that refinery utilization is expected to be between 72 percent and 76 percent—still low compared to historical levels, as the effect of the pandemic on fuel demand continues.

In oil products trading, the results “are expected to be significantly lower compared with the third quarter 2020,” Shell said.