Shell Signals Another Poor Quarter for Oil Majors

Shell’s update is the first indication of another tough quarter for the oil-and-gas sector, which continues to grapple with lower demand as Covid-19 lockdowns hit economies hard and halt travel around the world.

The downbeat trading update, issued ahead of fourth-quarter earnings due in February, comes despite a recovery in oil prices in recent weeks after vaccines to fight the virus were approved in some countries. Benchmark Brent oil has stabilized and reversed some losses, gaining almost 20% in the past three months to trade at around $50 a barrel, having briefly traded below $20 a barrel in April.

However, while Shell noted improved refining and chemical margins compared with the previous quarter, the rising oil price doesn’t appear to have been enough to turnaround the company’s fortunes.

“The indicative guidance looks disappointing,” said Biraj Borkhataria, an analyst at RBC Capital Markets.

Shell said the flagged $3.5 billion to $4.5 billion write-down includes an impairment of its deep water oil-and-gas project Appomattox, in the Gulf of Mexico, as well as charges related to its refining operations and onerous gas contracts.

The accounting charge follows the $16.8 billion posttax write-down Shell took earlier in the pandemic due in part to lower energy prices.

The pandemic has also prompted the company to reassess its payout to shareholders, with Shell cutting its dividend for the first time since World War II in April. The company did, however, increase its dividend slightly last quarter.

Shell has also sought to sell assets to shore up its finances and reduce its debt, which stood at around $73.5 billion at Sept. 30.

The company said Monday it had continued that drive, selling a 26.25% stake in infrastructure related to its Queensland Curtis LNG project to Global Infrastructure Partners Australia for $2.5 billion. The facilities include liquefied natural gas storage tanks, jetties and operations infrastructure. Shell expects the deal to complete in the first half of next year.

Shell previously said that it expects divestment proceeds to average $4 billion a year.

The oil major is also in the midst of a restructuring as part of a broader plan to accelerate investments in low-carbon energy, details of which are expected at a strategy update in February.

Shell said in September it was cutting up to 9,000 jobs as part of the restructuring, which it has indicated will focus on the highest value oil it produces, and growing its liquefied-natural gas and low-carbon energy businesses, while shrinking its refining operations.

That would follow a similar move by BP PLC, which is cutting 10,000 jobs or 14% of its workforce, alongside a plan to reduce its dependence on oil and increase low-carbon energy investments. Major oil companies including Shell and BP say the pandemic could accelerate the shift to cleaner energy.

Write to Sarah McFarlane at [email protected]