Shell to write off up to $5bn on Russia exit

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Shell to write off up to $5bn on Russia exit

Suban Abdulla: Thu, April 7, 2022, 8:41 AM

Energy stalwart Shell (SHEL.L) has warned that its exit from Russia could cost it as much as $5bn (£3.8bn) in the first three months of this year.

Shell will write off between $4bn and $5bn in the value of its assets, but the post-tax impairments will not impact the company’s earnings, it said in an update ahead of its earnings announcement in May.

Thursday’s announcement offers a first glimpse of the potential financial hit to western oil companies withdrawing from the country following its invasion of Ukraine.

“For the first quarter 2022 results, the post-tax impact from impairment of non-current assets and additional charges (e.g. write-downs of receivable, expected credit losses, and onerous contracts) relating to Russia activities are expected to be $4 to $5bn,” Shell said in a statement Thursday.

The company, which is valued at around $210bn, had previously said the Russia writedowns would reach around $3.4bn.

Shell said it will provide details of the “accounting treatment and impact of ongoing developments” at the first quarter 2022 results announcement.

Shares in Shell fell 1.5% on the news in early trade on Thursday in London.

In March, Shell was forced to apologise after it continued buying Russian oil at a huge discount despite a wider boycott of the Kremlin’s energy. This led to the company announcing it would stop buying Russian energy products and cutting all remaining ties with the Kremlin.

The FTSE 100 (^FTSE) oil giant pulled out of its joint ventures with Russian energy giant Gazprom. The move saw the company pull out of its 27.5% stake in the Sakhalin II liquefied natural gas facility, its 50% stake in the Salym Petroleum Development and the Gydan energy venture.

It also terminated its involvement in the Nord Stream 2 pipeline project, in which it held a 10% stake worth $1bn.

Despite pulling out, Shell said on Thursday that it was obliged to keep buying from Russia under previously-signed contracts, but that it would no longer buy oil on the so-called spot market. It will also shut its service stations, aviation fuels and lubricants operations in the country.

Rival BP (BP.L) had announced it would divest its nearly 19.75% stake in Russia’s state-controlled producer Rosneft (ROSN.ME) a day before Shell’s exit, which will result in charges of up to $25bn.

Other energy firms, including Norway’s Equinor (EQNR) also cut ties with their Russian partners.

The Ukraine war has seen benchmark crude prices surge to an average of more than $100 a barrel in the first quarter of 2022, their highest level since 2014, while European gas prices hit a record high.

Brent crude (BZ=F) rose 1.2% to $102.32 a barrel. US light crude (CL=F) was 1.3% higher to $97.43 in electronic trading on the New York Mercantile Exchange at the time of writing.

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