Shell flags up to $4.5bn in new impairment costs

Shell has flagged multi-billion-dollar impairment costs but assured investors of ‘significantly higher’ earnings from its gas trading division in the fourth quarter.

The FTSE 100 energy giant warned on Monday it anticipates declaring between $2.5billion and $4.5billion (£2billion to £3.5billion) in impairment charges, primarily driven by its Singapore-based refining and chemicals hub. 

But the oil supermajor forecasts its gas division producing up to 920,000 barrels of oil equivalent per day, as well as up to 7.3 million tonnes of liquefied natural gas due to seasonal shifts and greater ‘optimisation opportunities’.

Shell is reportedly seeking to sell some of assets in Singapore, including an ethylene plant and a refinery capable of generating 237,000 barrels per day, as part of a wider strategic review launched last year. 

In December, Reuters said two Chinese chemical producers, Eversun Holdings and Befar Group, the state-run China National Offshore Oil Corporation and energy trader Vitol were among the names considering buying the assets.

It added that Shell has asked them to submit a formal bid by the end of February before finalising a takeover later this year.

The business expects its chemicals and products segment to make an adjusted earnings loss in the fourth quarter, partly due to ‘significantly lower’ profits from trading oil products and chemicals.

Shell does forecast an earnings uplift totalling about $200million from joint venture operations in its upstream arm, but cautioned that exploration write-offs would total roughly the same amount.

Nonetheless, the company still enjoyed a relatively strong 2023 thanks to oil and gas prices remaining high on the back of Russia’s invasion of Ukraine and OPEC+ production cuts.

For the opening nine months of the year, it posted adjusted earnings of $21billion, including $6.2billion (£5.1billion) in the third quarter alone.

Yet this was significantly lower than the previous year when Shell scored record profits as oil prices soared above $100 amid the loosening of pandemic-related restrictions.

Petroleum prices have eased since October amid a poorer economic outlook caused by higher interest rates. Brent Crude currently stands at $77.80 per barrel as of 8 January.

Victoria Scholar, the head of investment at Interactive Investor, said a combination of solid output from the US and a weak demand outlook ‘could keep a lid’ on oil prices this year.

‘However, offsetting this are OPEC+ supply cuts, possible interest rate cuts in 2024 and the potential for China’s economy to improve,’ she added.

Shell shares were 2.2 per cent, or 57p, lower at £25.14 on Monday morning, making them the biggest faller on the FTSE 100 Index.