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Shell to cut £18bn from value of assets amid coronavirus crisis

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Shell has warned it will slash up to $22bn (£18bn) from the value of its oil and gas assets as it counts the cost of falling fossil fuel prices during the Covid-19 pandemic.

The Anglo-Dutch oil major expects the collapse in oil demand during the coronavirus crisis to drag on global oil prices for at least three years, wiping billions from the value of its fossil fuel reserves and casting doubt on whether new discoveries will be developed.

In a market update on Tuesday, the oil company said it has slashed its oil price forecasts and would likely need to take a post-tax impairment charge of between $15bn and $22bn on its global oil and gas assets spanning Australia, Brazil and North America.

Shell now expects Brent crude prices to average about $35 per barrel for the rest of 2020, before rising to $40 next year and $50 by 2022. The new forecasts are sharply below the oil prices expected by Shell only three months ago, which averaged around $60 per barrel for each year to 2022.

Brent crude prices were trading at $41.47 per barrel on Tuesday morning.

The decision to cut the value of its global portfolio comes just weeks after rival BP announced it would slash the value of its own assets by $17.5bn, its largest writedown in a decade, after cutting its own 30-year energy price forecasts by a third.

Shell expects its gas business to take the heaviest financial toll, less than four years after becoming one of the worlds largest players in the liquified natural gas market following its $53bn acquisition of BG Group.

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The value of its integrated gas business, the bulk of which is based in Australia, will take a financial hit of between $8bn to $9bn. Its oil refinery assets are likely to face a charge of between $3bn to $7bn while the value of its “upstream” exploration and production assets fall by $4bn to $6bn, largely due to its Brazilian and North American shale business.

Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said the multibillion dollar downgrades to Shells portfolio were not “overly surprising” following the severe slump in global oil prices.

“Oil prices are lower, and expected to stay low for some time. As a result the value of the oil Shell is set to pump in future is lower and the accountants have got the red pens out to mark down the value of Shells reserves,” he said.

“The real question is whether Shells fairly downbeat expectations are downbeat enough.” Hyett added. “Oil prices have spent a large part of the last five years under $60 a barrel and while the collapse of several large US shale names might reduce global supply, the outlook for demand is hardly robust.”

Shells update sent its shares down 2% to £13.10 on Tuesday morning, making it one of the the biggest fallers on the FTSE 100.

The company has lost about 40% of its market value since the start of the year, and cut its shareholder payouts for the year by two-thirds in Shells first dividend cut since the second world war.

Shell told investors it plans to cut spending by $9bn to weather the collapse in oil market prices in the wake of the coronavirus outbreak. Global fuel demand has plunged to 25-year lows during the pandemic, as steps to fight the disease have grounded planes, cut vehicle usage and curbed economic activity.

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