Shell swings to record quarterly loss in 2Q: Update

Updates throughout

Shell suffered a record loss of $18.38bn in the second quarter when it took a hefty impairment charge.

The loss, which excludes inventory effects, compares with a profit of $2.76bn in the first quarter and a profit of $3.03bn in the second quarter of 2019.

Shell booked a $16.8bn impairment charge on a post-tax basis in the three months to 30 June. This was at the lower end of the range it indicated last month, when Shell and peer BP flagged impairments triggered by revisions to oil and gas price assumptions and cuts to longer-term refining margins.

"Second-quarter 2020 results reflected lower realised prices for oil, LNG and gas, lower realised refining margins, oil products sales volumes and higher well write-offs, compared with the second quarter 2019," Shell said today.

The impairments helped pushed Shell's gearing — or net debt-to-capital ratio — up to 32.7pc at the end of June, from 28.9pc at the end of March. The company expects its gearing to remain "around or even higher than" the top-end of its 15-25pc target range in the current environment, chief executive Ben Van Beurden said today.

Gearing was also affected by a sharp fall in free cash flow to just $243mn in the second quarter, from $12.13bn in January-March and $6.87bn a year earlier. This meant Shell had to lean on its balance sheet to cover dividends, which pushed net debt up by $3.43bn from the end of March to $77.84bn at the end of June.

The second-quarter loss was "partly offset by very strong crude and oil products trading and optimisation results as well as lower operating expenses", Shell said. The firm's refining and trading operations made a profit of $1.5bn in the second quarter, excluding one-off items and inventory effects. This compares with a profit of just $52mn a year earlier.

Shell's oil and gas production was 3.38mn b/d of oil equivalent (boe/d) in April-June, of which 904,000 boe/d was from its integrated gas segment. Total production was down by 6pc on the year but slightly above Shell's previous expectations of 3.18mn-3.31mn boe/d.

Oil product sales reached 4.0mn b/d, down from 5.3mn b/d in the first quarter and 6.6mn b/d a year earlier. Second-quarter sales volumes would be 4.7mn b/d on a comparable basis with 2019, but Shell has changed its reporting basis. Refinery utilisation was 70pc in April-June, compared with 76pc a year earlier.

Shell expects third-quarter oil and gas production to reach 2.9mn-3.3mn boe/d, of which 820,000-880,000 b/d is from the integrated gas segment. It expects oil products sales volumes to reach 4mn-5mn b/d during the period, and refinery utilisation to be 68-76pc. It expects chemical sales volumes at 3.6mn-3.9mn t.

But the company cautioned that uncertainty surrounding the Covid-19 pandemic may require it to take measures to reduce production, LNG liquefaction and utilisation of refining and chemicals plants, which will "likely have a variety of impacts on our operational and financial metrics".

Shell lowered its dividend in April for the first time since 1945 in response to the oil price crash.

Looking further forward, global oil demand may never return to pre-pandemic levels, according to van Beurden, although the second quarter was probably "a low point" in terms of disruption, he said. "I believe it is likely to assume that demand will take a long time to recover, if it recovers at all." Van Beurden said he expects jet fuel demand to reach just 50pc of pre-crisis levels "at best" by the end of the year.

By Rowena Edwards