Konstantin Rozhnov of global energy and commodity price reporting agency Argus Media on Thursday (4 February) published a summary on the market forces and decisions Shell had to make throughout the Covid-19 pandemic and energy transition which resulted in the company’s record loss in 2020:
Shell posted a record loss in 2020 after it booked more hefty write-offs in the fourth quarter.
Excluding inventory effects, Shell made a loss of $4.48bn in the October-December period, compared with a profit of $871mn a year earlier. The quarterly loss was largely driven by pre-announced, non-cash post-tax impairment charges of $2.7bn and charges of $1.1bn mainly for “onerous contract provisions”.
Charges included a $1.3bn impairment in its Upstream division related to a partial impairment of the Appomattox asset in the US Gulf of Mexico, and $1.3bn in its Downstream segment for assets in the Netherlands and in Singapore, and the shutdown of the Convent refinery in the US. The shutdown also led to charges of $661mn for onerous contracts provisions, redundancy and restructuring.
Shell said its fourth quarter results reflected lower realised prices for oil and LNG, lower production volumes and lower realised refining margins, all compared with the same period a year earlier. This was partly offset by lower operating expenses and higher chemicals margins, it said.
For the whole of 2020, Shell made a loss of $19.92bn, compared with a profit of $15.27bn in 2019. It booked much heftier non-cash impairments in the second quarter.
The company’s oil and gas output fell by 10pc year on year to 3.371mn b/d of oil equivalent (boe/d) in the fourth quarter, which it said was mainly because of more maintenance activity, the effect of hurricanes in the US Gulf, divestments and Opec+ restrictions, and because of lower production in its Dutch NAM gas joint venture with ExxonMobil. Shell sees its production in the 3.3mn-3.55mn boe/d range in the current quarter.
It expects its proven reserves replacement ratio at -53pc for 2020, but at 23pc for the three-year average. It said that it anticipates that proven oil and gas reserves reductions, before taking production into account, will be around 0.7bn boe in 2020, and that production will be around 1.3bn boe.
Shell’s refinery runs dropped by 20pc year on year to 1.94mn b/d in the fourth quarter, and utilisation was 72pc compared with 78pc. It said that this was mainly down to lower demand and economic plant optimisation, as well as the shutdown at Convent. In the current quarter, the company sees utilisation at 73-81pc.
The company also said that its oil products trading results were “significantly below average” in the fourth quarter, without giving further details.
Shell’s cash capital expenditure (capex) amounted to $18bn last year, compared with $24bn in 2019 and against a target of no more than $20bn.
Its net debt gearing increased to 32.2pc at the end of December from 31.4pc at the end of the third quarter. Shell’s net debt increased to $75.4bn from $73.5bn over the same period, mainly because of lower free cash flow (FCF) generation and by lease additions.
The company kept its dividend unchanged in the reported period, and said that it plans an increase of about 4pc in the current quarter.
Photo credit and source: Argus Media
Published: 5 February, 2021
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