The global oil and gas industry may be in for greater troubles as Royal Dutch oil giant, Shell, said it expected to write down up to $2.3 billion in the fourth quarter due to a weaker economic outlook, joining a string of oil supermajors which were almost entirely forced to contract their operations amid a disappointing demand outlook.
The oil and gas major made the announcement in a trading update ahead of its full-year results, in further charges, Shell expects an impairment of $500-600 million from deferred taxes and another $ 100- 200 million from well decommissioning, neither will have a cash effect on Shell’s performance.
The company attributed the substantial impairment charge to the “macro outlook”, suggesting that factors such as the U. S- China trade dispute that led to a market- wide pessimism about global economic growth and, consequently, oil demand, have affected its performance.
In oil production, Shell said it expected the total for Q4 2019 to be between 2.775 and 2.825 million bpd, on an oil-equivalent basis.
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In gas production, Shell expects an average daily of 920,000 and 970,000 barrels of oil equivalent, with LNG output at 8.8-9.4 million tons.
As for CAPEX, the Anglo-dutch supermajor said its full-year will be closer to the lower end of the range it had given earlier this year, at $ 24- 29 billion. This was related to concern in the company about its capacity to sustain a generous buyback program aimed at boosting shareholder trust after the 2014 oil price crisis.
Shell warned in October that the worsening economy could slow the pace of returns to shareholders, prompting a negative reaction from investors despite the company comfortably beating even the highest analyst profit estimate for the third quarter
“Trading and optimization performance is expected to be average” in the company’s integrated gas unit, in the marketing and chemicals business “margins are expected to be lower due to seasonal trends, and weaker compared to the fourth quarter of 2018 due to crude price movements.” according to the statement.
Upstream, Shell says it expects production to be between 2,775 and 2,825 thousand barrels of oil equivalent per day. While downstream, refinery availability is expected to be between 91percent and 93percent. Similar to the third quarter 2019, refining margins are impacted by the continued weak macro environment
Also, oil products sales volumes are expected to be between 6,500 and 7,000 thousand barrels per day, marketing margins are expected to be lower due to seasonal trends, and weaker compared to the fourth quarter 2018 due to crude price movements impacting Retail margins
In October, rivals Chevron, BP and Spain’s Repsol all wrote down a total of around $20 billion, primarily in U. S. shale gas assets due to lower long- term gas prices.
