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Royal Dutch Shell PLC is lowering the value of its assets by as much as $ 22 billion due to lower energy prices following the demand-weakening coronavirus pandemic.
The amortization follows BP PLC, which was on a similar scale earlier this month. Low oil and gas prices caused by the pandemic and uncertainty about the pace of the transition to lower carbon energy have caused major oil companies to question the value of their reserves.
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Shell’s biggest writedowns come from its gas business, where it faces a charge of up to $ 9 billion, including reductions in the value of the Prelude and Queensland Curtis liquefied natural gas projects in Australia.
The earnings of the energy industry are under pressure and some companies have to borrow to pay dividends. In April, Shell cut its dividends for the first time since World War II, exceeding investor expectations that major oil companies would provide reliable dividends.
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Shell said Tuesday that its leverage level, net debt as a percentage of total equity, is expected to rise 3% due to lower asset value. In April, Shell’s gear was 29%, above the company’s target of 25%.
“Following the dividend cut, we believe that Shell, even in the current environment, will quickly disappear, and this should open the door to further distributions to shareholders,” said Biraj Borkhataria, co-director of European energy research at RBC Capital Markets.
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Shell expects benchmark Brent oil prices to average $ 35 a barrel this year and $ 60 a barrel over the long term.
Shell shares traded 1.7% on Tuesday.
Write to Sarah McFarlane at [email protected]
