Shell writes down up to $2.3bn on weaker economic outlook

Royal Dutch Shell said on Friday it expects to write down up to 2.3 billion dollars in the fourth quarter, the latest major energy company forced to shrink estimates for sector values, due to a weaker economic outlook.

In a trading update ahead of full year results, Shell also said it expected weaker margins in its refining, trading and marketing division while maintaining spending on the lower end of forecasts amid slowing demand for oil and gas.

The Anglo-Dutch company warned in October that trade tensions between the United States and China, the world’s two largest energy consumers, could hurt demand and take a toll on its performance.

Shell said it expects to take post-tax impairment charges in a range between 1.7 billion and 2.3 billion dollars for the quarter “based on the macro outlook”. It did not say which assets the impairments relate to.

Since October, rivals Chevron, BP Equinor and Spain’s Repsol all wrote down a total of around 20 billion dollars, primarily in U.S. shale gas assets due to lower long-term gas prices.

The impairment will likely increase Shell’s debt ratio, or gearing, which the company has struggled to reduce in recent years.

“This reduction in guidance and impairment appears to show that management underestimated how much weaker oil prices would be in the latter part of this year, as well as underestimating future demand for oil, along with its by-products,” said Michael Hewson, chief market Analyst at CMC Markets UK.

Its shares were down 0.9 per cent by 1000 GMT, compared with slight gains on the broader European energy index .SXEP.

Shell, which had beaten third-quarter profit expectations on strong oil and gas trading, also warned that higher taxes would hit earnings by about 500 million to 600 million dollars in the fourth quarter.

The company added that it expects additional well write-offs in the range of 100 million to 200 million dollars in the period, while 2019 capital expenditure is expected to be at the lower end of its guidance range of 24 billion to 29 billion dollars.

Production of oil and gas is expected to be higher from the third quarter while liquefied natural gas volumes are in line with previous forecasts at between 8.8 and 9.4 million tonnes.

Shell reports fourth quarter results on Jan. 30, 2020.