I hope you listened to my warnings over the past few years and divested yourself from any asset in any way tied to fossil fuels not just for moral reasons but for your own financial security.
A great deal of the asset values supporting the prices of a fossil fuel extraction company’s financial instruments is the capitalized cost of the proven discoveries of the fossilized assets still in the ground. In total this amounts to trillions of dollars.
If these assets cannot be extracted ever and/or sold for a price commensurate for which they are valued on the books, a write-down is going to occur. I warned and predicted that day would come and when it did it would be enormous and happen fast.
Welcome to “that day”. The write downs are beginning and are only going to become bigger and faster. And while firms that supply the fossil fuel extraction companies don’t have these assets on their books, the demand for their products and services will diminish and their capitalized assets will have to be written down since their depreciation will occur much faster than GAAP accounting practices currently allow.
“Royal Dutch Shell PLC said it will write down the value of its assets by as much as $22 billion amid the ongoing COVID-19 pandemic and a significant drop in oil demand, the company said yesterday in a second-quarter update.”
“the Shell write-down signals a “turning point” for the oil and gas sector as it confronts the idea of assets becoming stranded in a decarbonizing world.”
“The write-down is also the mark of an industry facing the possibility of a faster-than-expected energy transition from fossil fuels, experts said.”
“”This is a sign that the [low-carbon] transition is happening faster than the industry had been willing to acknowledge up until now,””
“what’s important about the Shell announcement is that it “represents a stranding of assets in real time, which is really critical,” Logan added.”
“increased pressure on other oil and gas companies, both for European peers like Equinor ASA that still have a “fairly optimistic” view of long-term oil prices and for some U.S. companies that have yet to disclose information around long-term price expectations.”
“Shell is giving us a message about stranded assets, just like BP did a few weeks ago,” Parker said in a note yesterday, adding that Shell’s write-down is about “fundamental change hitting” the sector.”
“”This means a significant downward adjustment to the future value of resources and risk of stranded assets,” Scargill said in an email. “We would expect further announcements of this kind to come as the industry adjusts to a new market outlook.”
Lorne Stockman, a senior research analyst at advocacy group Oil Change International, said it should not have taken a pandemic for oil companies to realize that planning on rising oil and gas demand is “wishful thinking at best.””
Shell’s $22B Hit Called ‘Turning Point’ for Oil
Carlos Anchondo, E&E Reporter
July 1, 2020
Royal Dutch Shell PLC said it will write down as much as $22 billion in the second quarter. Shell
Royal Dutch Shell PLC said it will write down the value of its assets by as much as $22 billion amid the ongoing COVID-19 pandemic and a significant drop in oil demand, the company said yesterday in a second-quarter update.
Shell’s announcement — approximately two weeks after BP PLC said it would reduce the value of its oil and gas assets by as much as $17.5 billion — is the latest indication of the novel coronavirus’s toll on the global oil and gas sector, which has suffered under travel restrictions and lockdowns.
The write-down is also the mark of an industry facing the possibility of a faster-than-expected energy transition from fossil fuels, experts said.
Andrew Logan, senior director of oil and gas at sustainability nonprofit Ceres, said the Shell write-down signals a “turning point” for the oil and gas sector as it confronts the idea of assets becoming stranded in a decarbonizing world.
“This is a sign that the [low-carbon] transition is happening faster than the industry had been willing to acknowledge up until now,” Logan said, referring to Shell’s and BP’s news.
Oil and gas companies have been willing to acknowledge there might be risks in the future, but what’s important about the Shell announcement is that it “represents a stranding of assets in real time, which is really critical,” Logan added.
Logan said Shell’s changes to its long-term forecast put increased pressure on other oil and gas companies, both for European peers like Equinor ASA that still have a “fairly optimistic” view of long-term oil prices and for some U.S. companies that have yet to disclose information around long-term price expectations.
Shell’s forecast projects that Brent crude will be at $40 per barrel next year and $60 per barrel by 2023. Brent oil traded for around $41 per barrel yesterday.
Shell broke out the write-downs into three segments, with its integrated gas unit making up $8 billion to $9 billion of the total, followed by oil products at up to $7 billion. The major’s upstream division — largely in North American shales and Brazilian assets — accounted for $4 billion to $6 billion.
The impairments are “the biggest headline loss” since the so-called unification of Royal Dutch Petroleum Co. and Shell Transport and Trading Co. Ltd., according to Curtis Smith, a Shell spokesman.
“This is just an update to our price and margin outlook based on the current environment that we have applied for impairment testing,” Smith said in an email, responding to a question on stranded assets at Shell.
The idea of stranded assets — as well as climate risk, peak demand and liquidation business models — is something “few within the oil and gas industry would even countenance” just a few years ago, according to Luke Parker, a vice president of corporate analysis at Wood Mackenzie.
“Within this write down, Shell is giving us a message about stranded assets, just like BP did a few weeks ago,” Parker said in a note yesterday, adding that Shell’s write-down is about “fundamental change hitting” the sector.
Will Scargill, a managing analyst at consulting firm GlobalData, echoed Parker and said Shell’s announcement reflects industry uncertainty about oil and gas demand after COVID-19. Like BP, Shell is less bullish about future demand growth because of the economic shock rendered by the pandemic and is preparing for a faster energy transition, he said.
“This means a significant downward adjustment to the future value of resources and risk of stranded assets,” Scargill said in an email. “We would expect further announcements of this kind to come as the industry adjusts to a new market outlook.”
Lorne Stockman, a senior research analyst at advocacy group Oil Change International, said it should not have taken a pandemic for oil companies to realize that planning on rising oil and gas demand is “wishful thinking at best.”
“It is also worth noting that over 40% of the impairment is attributed to Shell’s gas assets,” Stockman said in a statement.
