Shell expects to book up to US$800 million in impairment charges as oil tumbles

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Based on changes to its oil price outlook for 2020, Anglo-Dutch oil major Shell said on Tuesday its post-tax impairment charges for the first quarter are expected to be in the range of US$400-800 million, as the impact of COVID-19 and the OPEC price war deepens.

Upstream production is expected to be between 2,650 and 2,720 thousand barrels of oil equivalent per day in the first quarter. Ahead of its first-quarter results, Shell said it still estimates that every US$10 per barrel change in the price of Brent crude oil has a US$6 billion per annum impact on cash flow from operations, but that “this price sensitivity is indicative and is most applicable to smaller price changes than we currently witness as well as in relation to the full-year results.”

The company said it signed a new $12 billion credit facility on top of its existing $10 billion facility, and it has another $20 billion in cash or cash equivalents.

Details of its first-quarter charge come a week after Shell announced plans to heavily cut operating costs and spending proposals to help mitigate the impact of the coronavirus outbreak and tumbling oil prices.

Reports also indicate that Shell has pulled out of a major liquefied natural gas (LNG) export plant under development in Louisiana following in a move that resulted in its partner, Energy Transfer, delaying the final decision on going ahead with the project to next year.

The oil giant said it expects “significant uncertainty” around oil prices and demand as the Covid-19 pandemic wreaks havoc on the world economy.

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