Global petroleum and energy company Shell is warning that the value of its oil and gas assets could fall by as much as US$22-billion in 2020.
The energy giant has announced another write-down that will shave up to $4.5-billion from its portfolio in the final quarter of this year.
Weaker outlook for global oil demand
It blamed the decision on the weaker outlook for global oil demand, which is due to Covid-19’s impact on business and leisure travel, as well as poor global economic growth prospects.
Shell added that the fourth-quarter results for its oil products division, due out in February, would be significantly lower compared with the third quarter.
The company’s latest write-downs could bring its total impairments to $22-billion for this year, which has been one of the worst on record for the industry due to the drop in demand for crude and fuels.
More investment into renewable energy
The write-down includes Shell’s Appomattox oil and gas project in the Gulf of Mexico, which began production in April last year and plans to pump the equivalent of 175,000 barrels of oil a day at its peak.
According to a report in the UK-based Guardian newspaper, Shell plans to use its deepwater oil and gas assets as a ‘cash engine’ to generate free cashflow that can be reinvested in renewable energy.
The company plans to invest up to $2-billion a year on new energies such as offshore windfarms, electric vehicles and electric car charging. In total it will spend $20-billion this year, after cutting its planned capital expenditure from $25-billion in March.
Crisis of uncertainty facing oil companies
Shell was once the FTSE 100’s biggest dividend payer. But it cut its dividend from 47 cents to 16 cents a share in April because of the crisis of uncertainty facing oil companies during the pandemic.
“The coronavirus has wreaked havoc on big oil companies this year by causing one of the fastest drops in demand in history. In response ministers from the world’s largest oil-producing countries agreed to cut their production to prevent a market collapse,” the Guardian reported.