Shell second quarter 2020 update note
30 Giugno 2020 - 8:00AM
Shell second quarter 2020 update note
The Hague, June 30, 2020 - This is an update to the
second quarter 2020 outlook provided in the first quarter results
announcement on April 30, 2020. The impacts presented here may vary
from the actual results and are subject to finalisation of the
second quarter 2020 results.
Unless otherwise indicated, presented post-tax earnings impacts
relate to earnings on a current cost of supplies basis,
attributable to shareholders, excluding identified items.
In addition, given the impact of COVID-19 and the ongoing
challenging commodity price environment, Shell continues to adapt
to ensure the business remains resilient. In light of this, Shell
is announcing today a revised long-term commodity prices and margin
outlook, which is expected to result in non-cash impairments in the
second quarter results. Details of the outlook and impairments are
provided in the later part of this document.
Integrated Gas
- Production is expected to be between 880 and 910 thousand
barrels of oil equivalent per day
- LNG liquefaction volumes are expected to be between 8.1 and 8.5
million tonnes
- Additional well write-offs in the range of $250 to $350 million
are expected compared with the second quarter 2019. No cash impact
is expected in the second quarter
- Deferred tax charges are expected to have a negative impact on
earnings in the range of $100 to $200 million. No cash impact is
expected in the second quarter
- Trading and optimisation results are expected to be below
average
- As previously communicated, more than 90% of our term contracts
for LNG sales in 2019 were oil price linked with a price-lag of
typically 3-6 months. Consequently, the impact of lower oil prices
on LNG margins became more prominent from June onwards
- CFFO in Integrated Gas can be impacted by margining resulting
from movements in the forward commodity curves. Margining inflows
are not expected to be significantly different from those received
in the first quarter 2020
Upstream
- Production is expected to be between 2,300 and 2,400 thousand
barrels of oil equivalent per day. Although this production range
is higher compared with the outlook previously provided, it has had
a limited impact on earnings in the current macro environment
- Updates related to receivables and inventory provisions are
expected to have a negative earnings impact in the range of $200 to
$400 million compared with the second quarter 2019. No cash impact
is expected in the second quarter
- As previously communicated, CFFO is expected to be negatively
impacted by the Lula unitisation settlement in Brazil of around
$500 million, for which the earnings impact was recognised in the
third quarter 2018
- While earnings are expected to show a loss, CFFO is not
expected to reflect equivalent cash tax receipts due to the
build-up of deferred tax positions in a number of countries.
Additionally, due to phasing impacts, tax payments are expected in
the second quarter
Oil Products
- Refinery utilisation is expected to be between 67% and 71%
- Realised gross refining margins are expected to be
significantly lower compared with the first quarter 2020 and are
expected to be offset by higher trading and optimisation
results
- Oil Products sales volumes are expected to be between 3,500 and
4,500 thousand barrels per day, driven by a significant drop in
demand related to the impact of COVID-19
- Updates related to receivables provisions are expected to have
a negative earnings impact in the range of $200 to $300 million. No
cash impact is expected in the second quarter
- Working capital in Oil Products are typically impacted by
movements between the quarter opening and closing price of crude
along with changes in inventory volumes. Inventory volumes are
expected to be higher compared with the end of the first quarter
2020, impacting working capital negatively
Chemicals
- Chemicals manufacturing plant utilisation is expected to be
between 75% and 79%
- Chemicals sales volumes are expected to be between 3,400 and
3,700 thousand tonnes
Corporate
- Corporate segment earnings excluding identified items are
expected to be a net expense at the lower end of the $800 to $875
million range for the second quarter. This excludes the impact of
currency exchange rate effects
- CFFO is expected to be impacted by a working capital outflow in
respect of margining and settlement of operational foreign exchange
instruments
Revised commodity price and margin outlook and
impairments
In the second quarter 2020, Shell has revised its mid and
long-term price and refining margin outlook reflecting the expected
effects of the COVID-19 pandemic and related macroeconomic as well
as energy market demand and supply fundamentals. This has resulted
in the review of a significant portion of Shell’s Upstream,
Integrated Gas and Refining tangible and intangible assets.
The Refining asset valuation updates reflect Shell’s strategy to
reshape and focus its refining portfolio to support the
decarbonization of its energy product mix, leveraging assets and
value chains in key markets. The Upstream and Integrated Gas asset
valuation updates, including of related exploration and evaluation
assets, are largely driven by the change in long-term prices with
some impacts due to a changed view on the development
attractiveness. A revision in the decommissioning and restoration
provision discount rate assumption from 3% to 1.75%, reflecting a
lower interest rate environment, has impacted the asset values
tested for impairment.
- The following price and margin outlook have been assumed for
impairment testing:
- Brent: $35/bbl (2020), $40/bbl (2021), $50/bbl (2022), $60/bbl
(2023) and long-term $60 (real terms 2020)
- Henry Hub: $1.75/MMBtu (2020), $2.5/MMBtu (2021 and 2022),
2.75/MMBtu (2023) and long-term $3.0/MMBtu (real terms 2020)
- Average long-term refining margins revised downwards by around
30% from previous midcycle downstream assumption
- Based on these reviews, aggregate post-tax impairment charges
in the range of $15 to $22 billion are expected in the second
quarter. Impairment charges are reported as identified items and no
cash impact is expected in the second quarter. Indicative breakdown
per segment is as follows:
- Integrated Gas $8 – $9 billion, primarily in Australia
including partial impairment of QGC and Prelude
- Upstream $4 – $6 billion, largely in Brazil and North America
Shales
- Oil Products $3 – $7 billion across the refining portfolio
- These impairments are expected to have a pre-tax impact in the
range of $20 to $27 billion. No impairment charge on Goodwill is
expected to be recorded in the second quarter
- Impairment calculations are being progressed: the range and
timing of the recognition of impairments in the second quarter are
uncertain and assessments are currently ongoing
- The revised outlook for commodity prices and refining margins
could impact overall deferred tax positions, which will be reviewed
after the finalisation of the operating plan later in 2020
Other
- Gearing is expected to increase by up to 3% due to the
impairments. Additional impacts to reported gearing levels are
expected due to pensions revaluations associated with the current
interest rate environment along with other usual quarterly
movements
- As per previous disclosures, CFFO price sensitivity at Shell
Group level is still estimated to be $6 billion per annum for each
$10 per barrel Brent price movement
- Note that this price sensitivity is indicative, is most
applicable to smaller price changes than those in the current
environment and in relation to the full-year results. This excludes
short-term impacts from working capital movements and cost-of-sales
adjustments
- In order to enhance our disclosures and market communications,
a quarterly press release will be published as of the second
quarter 2020, in addition to the quarterly unaudited results. The
quarterly press release will provide a summary of key messages and
key performance drivers and should not be considered in isolation
from, or a substitute for, financial information presented in
compliance with Generally Accepted Accounting Principles (GAAP). To
further simplify market communications, with effect from the second
quarter, “CCS earnings attributable to shareholders excluding
identified items” will be renamed to “Adjusted earnings” while the
definition remains unchanged
ConsensusThe consensus collection for quarterly earnings
and CFFO excluding working capital movements, managed by VARA
research, is scheduled to be opened for submission on July 8, 2020,
closed on July 22, 2020, and made public on July 23, 2020.
Royal Dutch Shell plc
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(coronavirus) outbreak; and (n) changes in trading conditions. No
assurance is provided that future dividend payments will match or
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entirety by the cautionary statements contained or referred to in
this section. Readers should not place undue reliance on
forward-looking statements. Additional risk factors that may affect
future results are contained in Royal Dutch Shell’s Form 20-F for
the year ended December 31, 2019 (available at
www.shell.com/investor and www.sec.gov). These risk factors also
expressly qualify all forward-looking statements contained in this
announcement and should be considered by the reader. Each
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resources, in this announcement that the United States Securities
and Exchange Commission (SEC) strictly prohibits us from including
in our filings with the SEC. Investors are urged to consider
closely the disclosure in our Form 20-F, File No 1-32575, available
on the SEC website www.sec.gov.
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