Royal Dutch Shell was hit by huge changes in fortune as the COVID-19 crisis forced a write-down in asset values. The energy giant reported deep financial losses after that record writedown on oil and gas assets. It was forced to take these measures due to a rapid collapse in the global market prices that were triggered by the health crisis.
The oil giant reported a net loss of $18.3bn (£14.1bn) for Q2 2020. That is a steep plunge from a net profit of $3 billion recorded over the same period in 2019 and $2.7 billion in Q1 2020.
Nonetheless, the company was rescued from a disaster of the worst set of quarterly financial results on record by its oil trading activities. That business segment enabled the firm to shore up its income as the oil market prices dropped to 21-year lows.
Shell later published an adjusted net income of $638 million in Q2 2020. But that amount was down 82% from the same period recorded in 2019 after analysts had anticipated a $664 million loss.
Shell’s chief executive, Ben van Beurden, said the company had delivered “resilient” cash flows in “a remarkably challenging environment”. But, the firm was still compelled to make record downgrade to the value of its gas and oil assets in a post-tax impairment charge of $16.8 billion; after revising down the forecasts for global oil prices as the effects of the health crisis proved quite severe.
The writedown consists of the group’s stake in an offshore oilfield located in Nigeria; and owned in partnership with Eni, an Italian oil company. The Italian company is at the epicenter of a continuing corruption case in Italy.
Shell said that it anticipates the global oil prices to remain quite below the average 2019 levels; for the coming three years. It has projected oil prices to hover at an average of $35 a barrel in 2020, rising to $40 in 2021, $50 in 2022, and $60 in 2023. The average oil price in 2019 was $64.36 a barrel.
Total Takes The Heat As Well
Dropping oil price forecasts have also taken a toll on the French oil giant, Total. The company also published an $8bn writedown on the value of its assets which includes $7bn from its Canadian oil sands.
Total recorded a profit for Q2 2020 of $126 million which is down 96% from the same months in 2019. However, it has decided to keep its shareholder dividends intact.
Earlier in 2020, Shell cut down its shareholder dividend for the first time since World War II. The company also raised alarm stating that it is encountering a ‘crisis of uncertainty’; after the abrupt sharp collapse of the global oil prices.
Van Beurden explained the ‘monumental’ decision to slash the payout by a staggering 66%; from $15bn last year to $5bn this year, was a necessity to help the firm remain afloat in these harsh conditions. He said that the move would also enhance the financial resilience of the company.
Shell Makes A Prediction
Shell said in April that its profits for Q1 2020 plunged to $2.9bn (£2.3bn). That was a drop of 46% from the $5.3 billion recorded in the same quarter in 2019. At the time, the company told investors that the second quarter would be worse due to the massive lockdowns.
An official statement from the company confirmed that it had decided to shun all executive bonuses for this financial year. Also, the company plans to slash its spending budgets and costs to save around $9 billion. Shell also announced that it would ‘possibly’ consider voluntary redundancies later this year as well.
For now, investors are looking at the current health crisis hoping that a vaccine will be found soon enough to enable the global economy to recover.