Shell blames Australian gas projects for huge writedown
Shell has blamed several of its high profile Australian gas projects for the bulk of a looming writedown of up to $US9bn.
Energy giant Shell said several of its high profile Australian gas projects were to blame for a massive $US8bn to $US9bn ($A11.7bn-$A13.2bn) writedown triggered by lower prices amid a Covid-19 demand shock.
The energy major - one of Australia’s biggest gas producers and foreign investors - will take an impairment of up to $US22bn on its global assets.
The largest write-downs were sparked from its gas business with the $US8-$US9bn figure attributed primarily to Australia including a partial impairment of its Queensland QGC unit and troubled Prelude floating LNG project offshore northern Australia.
The writedowns follow rival BP which took an impairment of up to $US17.5bn after cutting its oil price assumptions by up to 30 per cent out to 2050.
Shell expects Brent oil prices to average just $US35 a barrel this year and $US60 a barrel in the long term, sparking concern that crude may remain at depressed price levels for an extended period as fears grow over the economic hit from a drawn out coronavirus recovery.
Australian oil and gas producers are expected to follow global majors in suffering writedowns in the coming months due to lower oil and gas prices, Macquarie had warned on Tuesday.
The nation’s top producers have typically used $US70-75 a barrel for impairment testing purposes compared with Brent crude which is trading at $US41 currently, following several months in sub-$US30 territory earlier this year.
“Following some high profile impairments in the global energy sector recently with BP and Occidental both flagging very large impairments during June, we expect the Australian energy sector to face heightened impairment risk this half,” Macquarie analysts said. “ASX listed energy companies have typically been using US$70-75/bbl real for impairment testing purposes.”
Shell has already taken a hit this year after its tie-up with PetroChina was forced into a $520m writedown on their Australian gas business, pushing the venture further into the red with losses now topping $8bn over the last decade.
The duo’s Arrow Energy joint venture saw its 2019 net loss after tax slump further to $866m from a $752m loss a year earlier with hefty impairment and depreciation costs hitting the Queensland-based energy operator’s result.
Losses since the Arrow venture was formed in 2010 have now reached $8.1bn or over $12.5bn when combined with $4.4bn of acquisition costs including the $3.5bn paid by the two energy producers to acquire Arrow a decade ago.
Its $US12bn floating Prelude LNG project has also been under pressure.
The Shell executive tasked to deliver the project, Rob Jager,, is set to quit the energy giant with the gas facility still offline following onboard safety issues.
The floating vessel was touted by Shell as the first of a revolutionary line of projects to unlock stranded gas resources previously considered too remote to support development of conventional land-based LNG plants.
However, the plant had yet to reach its full 3.6m tonne a year capacity when a number of safety incidents unfolded in December and January which were probed by the National Offshore Petroleum Safety and Environmental Management Authority.
Futures markets now indicate a long-run price of under $US50 a barrel out until 2023 compared with Woodside Petroleum’s $US68 a barrel forecast in 2022 and Santos $US72 a barrel price.
Auditors may struggle to justify signing off company accounts on June 30. Those accounts continue to project prices well over double current levels, according to industry sources, which could spell major impairments either for the industry at interim or year-end reporting dates.
Capitalised oil and gas assets total $52bn among the big Australian producers Woodside, Santos, Oil Search and Beach Energy, industry analysis shows, while exploration and evaluation assets total more than $12bn for the same four companies.
Australian oil and gas producers have already embarked on billions of dollars of cost cutting this year in response to the oil rout with $60bn of LNG growth projects deferred and more than 2000 jobs lost.
Macquarie lowered its 2020 oil price forecast to $US43.75 and its 2021 estimate to $US49.50 with a long-term Brent price unchanged at $US56 a barrel.
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