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Shell posts $18billion loss in second quarter

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Shell has posted losses of $18.1billion (£14bn) for the second quarter of 2020 as oil, LNG and gas prices remain depressed.

The energy major took an impairment charge of $16.8billion (£12.9bn) – $22.3bn pre-tax (£17.2bn) -as it wrote down the valuation of assets due to the downturn and Covid-19.

Shell’s second quarter results compare to a profit of $3.1bn (£2.39bn) in the same period last year,  while revenues have dropped to $32.5bn, compared to $60bn in Q1 2020 and $90.5bn Q2 2019.

Despite the losses, the firm has maintained its reduced shareholder dividend at 16 cents per share, which Shell cut by 66% in Q1 in a first since 1945.

Pre-tax, Shell’s losses stand at $23.9bn, down from $4.9bn in Q2 2019.

The firm also highlighted its adjusted earnings – its income/losses attributable to shareholders plus cost of supplies and excluding identified items – of $638m (£492m).

As it forecasted last month, write-downs were taken across several segments, with integrated gas taking a $8.2bn hit, mainly related to its QGC project and Prelude floating LNG projects in Australia.

Upstream wrote down $4.7bn, mainly relating to North American unconventional assets, an asset in the US Gulf of Mexico, four offshore projects in Europe, two in Brazil and a project in Nigeria.

OPL 245, the project in Nigeria, is at the centre of a trial in Milan. Shell and Eni are accused of paying bribes to secure the licence.

Elsewhere, Oil Products had a $4bn charge relating to European and North American refineries’ and the Corporate segment had a $5million impairment.

Shell said it had based the impairments on a Brent price of $35 in 2020, rising incrementally to $60 in 2023, and Henry Hub natural gas prices of $2.75 per them in 2023.

Upstream production available for sale was down 7% year-on-year at 2,415,000 barrels per day.

In its outlook for the third quarter, Shell warned that demand levels or regulatory changes in the current environment might require it to “curtail or reduce” oil and gas production, LNG liquefaction and use of refining and chemicals plants, hitting its “operational and financial metrics”.

CEO Ben van Beurden said: “Shell has delivered resilient cash flow in a remarkably challenging environment.

“We continue to focus on safe and reliable operations and our decisive cash preservation measures will underpin the strengthening of our balance sheet.

“Our high-quality integrated portfolio, disciplined execution and forward-looking strategy enable sustained competitive free cash flow generation.”

Half-year pre-tax losses stood at $23.2bn.

Analysis on Shell results

Stuart Lamont, investment manager at Brewin Dolphin, said: “Inevitably, the biggest talking point in this morning’s results from Royal Dutch Shell is the huge loss the company has incurred – largely as a result of revised pricing.

“It is an indication of just how serious the impact of Covid-19 has been on businesses, particularly in the oil and gas sector.

“The pandemic’s influence is likely to remain far-reaching, with Shell saying it may still need to curtail or reduce production later in the year to mitigate lack of demand – an indication that there may still be more pain to come.

“Investors can, however, take some succour from the maintained – albeit comparatively low – dividend, which some had feared may come under pressure again following Shell’s historic cut earlier in the year.”

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