Shell: Decarbonization Contributes to Multi-Billion Dollar Writedown
Royal Dutch Shell announced multi-billion dollar impairments as part of the company’s revised Q2/20 outlook, reflecting major changes in the company’s commodity price and refining margin medium and long-term assumptions. Shell expects the impairments to have a pre-tax impact in the range of $20 to $27 billion, with aggregate post-tax impairment charges in the range of $15 to $22 billion.
Shell explained that the revised assumptions reflect the expected effects of the COVID-19 pandemic and related macroeconomic as well as energy market demand and supply fundamentals. Additionally, refining asset valuation updates reflect Shell’s strategy to reshape and focus its refining portfolio to support the decarbonization of its energy product mix, leveraging assets and value chains in key markets.
Shell’s writedown follows similar action recently by fellow energy major bp, which announced that it would record a financial impairment of $13 to $17.5 billion, representing 13% – 17% of the company’s net assets.
As many economies and countries begin to plan for a low carbon future, oil and gas companies are coming under increasing pressure to revalue their assets to reflect the new reality. Last month, a group more than 20 institutional investors and pension funds has released details of a campaign they have embarked on calling on major fossil fuel-linked companies to adjust accounting assumptions and disclosures to account for the effects of the Paris Agreement. The group cited the bp announcement as a major milestone in the campaign.