Shell’s multibillion-dollar impairment signals more tough times ahead

LONDON (Bloomberg) --Investors expecting an end-of-year rebound in the oil and gas industry could be in for a disappointment, if figures published by Royal Dutch Shell Plc are any indication.

The Anglo-Dutch energy giant gave a first taste of what could prove to be another bleak quarter for the industry. It warned of another multibillion-dollar impairment charge, significantly weaker oil trading, a loss in its upstream division and fuel sales that remain sluggish.

“The indicative guidance looks disappointing, particularly in the context of the strong run Shell has had in recent weeks,” RBC analyst Biraj Borkhataria said in a note.

Shell, along with its peers, is coming to the end of a tumultuous year. Its finances have been pummeled as the coronavirus pandemic decimated oil and gas demand. The company has been forced to slash its dividend and plan thousands of layoffs.

More Pain

Initial fourth-quarter figures published on Monday, before full results on Feb. 4, show the pain is not yet over for the company.

Trading results in the oil-products division will be “significantly lower compared with the third quarter,” when the unit helped Shell avoid a loss. The company sees fuel sales volumes of 4 million to 5 million barrels a day, in line with the prior quarter but down from more than 6 million a year earlier.

Shell’s B share prices were down 3.3% at 1,296 pence at 8:44 a.m. in London.

Shell’s upstream unit, which oversees most exploration and production, is expected to report an adjusted loss for the fourth quarter, in part due to a tax charge of $600 million to $900 million.

The company expects post-tax charges of as much as $4.5 billion in relation to impairments, asset restructuring and “onerous contracts.” Shell has already announced more than $18 billion of writedowns this year.

In its Integrated Gas unit, Shell expects production to increase to between 900,000 and 940,000 barrels of oil equivalent a day this quarter, though trading results will be “below average.” Earlier on Monday, Shell said it agreed to sell a minority stake in a liquefied natural gas project in Australia for $2.5 billion.

Refinery utilization is expected to be higher than in the third quarter, at as much as 76%, while refining margins will be “slightly improved.” However, trading results in that business are forecast to be “significantly lower,” according to the statement.

Shell is scheduled to publish a strategy update Feb. 11.