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Shell follows BP by marking down the value of its assets
The £22 billion worth of asset write-downs announced on 30 June by Royal Dutch Shell (RDSB) reflected its lower commodity price assumptions in the wake of coronavirus. They provided a gloomy trailer to its second quarter results but there were some bright spots for investors to take away.
The company’s operational performance was a little bit better than expected with quarterly production of between 2.3 billion to 2.4 billion barrels of oil equivalent per day (boepd) comparing with previous guidance of 1.75 billion to 2.25 billion boepd.
On 29 June Shell’s peer BP (BP.), which has already announced write-downs of $17.5 billion, unveiled the sale of its petrochemicals business to Ineos for $5 billion subject to regulatory clearance.
This potential future cash injection is unlikely to be enough to prevent it having to follow in Shell’s footsteps by cutting its dividend.
The extreme nature of the challenge posed by the Covid-19 pandemic is enabling management at both companies to make hard-nosed strategic decisions.
Analysts at Killik & Co comment: ‘We believe that rising costs of capital to the sector could create barriers to entry from which the strongest names could benefit, while the integrated stocks are best placed to transition their businesses from big oil to big energy companies.’
When do Shell and BP report?
Shell Q2 – 30 Jul
BP Q2 – 4 Aug