Royal Dutch Shell plc Shell Second Quarter 2020 Update Note
June 30 2020 - 2:30AM
Dow Jones News
TIDMRDSA TIDMRDSB
The Hague, June 30, 2020 - This is an update to the second quarter 2020
outlook provided in the first quarter results announcement on April 30,
2020. The impacts presented here may vary from the actual results and
are subject to finalisation of the second quarter 2020 results.
Unless otherwise indicated, presented post-tax earnings impacts relate
to earnings on a current cost of supplies basis, attributable to
shareholders, excluding identified items.
In addition, given the impact of COVID-19 and the ongoing challenging
commodity price environment, Shell continues to adapt to ensure the
business remains resilient. In light of this, Shell is announcing today
a revised long-term commodity prices and margin outlook, which is
expected to result in non-cash impairments in the second quarter
results. Details of the outlook and impairments are provided in the
later part of this document.
Integrated Gas
-- Production is expected to be between 880 and 910 thousand barrels of oil
equivalent per day
-- LNG liquefaction volumes are expected to be between 8.1 and 8.5 million
tonnes
-- Additional well write-offs in the range of $250 to $350 million are
expected compared with the second quarter 2019. No cash impact is
expected in the second quarter
-- Deferred tax charges are expected to have a negative impact on earnings
in the range of $100 to $200 million. No cash impact is expected in the
second quarter
-- Trading and optimisation results are expected to be below average
-- As previously communicated, more than 90% of our term contracts for LNG
sales in 2019 were oil price linked with a price-lag of typically 3-6
months. Consequently, the impact of lower oil prices on LNG margins
became more prominent from June onwards
-- CFFO in Integrated Gas can be impacted by margining resulting from
movements in the forward commodity curves. Margining inflows are not
expected to be significantly different from those received in the first
quarter 2020
Upstream
-- Production is expected to be between 2,300 and 2,400 thousand barrels of
oil equivalent per day. Although this production range is higher compared
with the outlook previously provided, it has had a limited impact on
earnings in the current macro environment
-- Updates related to receivables and inventory provisions are expected to
have a negative earnings impact in the range of $200 to $400 million
compared with the second quarter 2019. No cash impact is expected in the
second quarter
-- As previously communicated, CFFO is expected to be negatively impacted by
the Lula unitisation settlement in Brazil of around $500 million, for
which the earnings impact was recognised in the third quarter 2018
-- While earnings are expected to show a loss, CFFO is not expected to
reflect equivalent cash tax receipts due to the build-up of deferred tax
positions in a number of countries. Additionally, due to phasing impacts,
tax payments are expected in the second quarter
Oil Products
-- Refinery utilisation is expected to be between 67% and 71%
-- Realised gross refining margins are expected to be significantly lower
compared with the first quarter 2020 and are expected to be offset by
higher trading and optimisation results
-- Oil Products sales volumes are expected to be between 3,500 and 4,500
thousand barrels per day, driven by a significant drop in demand related
to the impact of COVID-19
-- Updates related to receivables provisions are expected to have a negative
earnings impact in the range of $200 to $300 million. No cash impact is
expected in the second quarter
-- Working capital in Oil Products are typically impacted by movements
between the quarter opening and closing price of crude along with changes
in inventory volumes. Inventory volumes are expected to be higher
compared with the end of the first quarter 2020, impacting working
capital negatively
Chemicals
-- Chemicals manufacturing plant utilisation is expected to be between 75%
and 79%
-- Chemicals sales volumes are expected to be between 3,400 and 3,700
thousand tonnes
Corporate
-- Corporate segment earnings excluding identified items are expected to be
a net expense at the lower end of the $800 to $875 million range for the
second quarter. This excludes the impact of currency exchange rate
effects
-- CFFO is expected to be impacted by a working capital outflow in respect
of margining and settlement of operational foreign exchange instruments
Revised commodity price and margin outlook and impairments
In the second quarter 2020, Shell has revised its mid and long-term
price and refining margin outlook reflecting the expected effects of the
COVID-19 pandemic and related macroeconomic as well as energy market
demand and supply fundamentals. This has resulted in the review of a
significant portion of Shell's Upstream, Integrated Gas and Refining
tangible and intangible assets.
The Refining asset valuation updates reflect Shell's strategy to reshape
and focus its refining portfolio to support the decarbonization of its
energy product mix, leveraging assets and value chains in key markets.
The Upstream and Integrated Gas asset valuation updates, including of
related exploration and evaluation assets, are largely driven by the
change in long-term prices with some impacts due to a changed view on
the development attractiveness. A revision in the decommissioning and
restoration provision discount rate assumption from 3% to 1.75%,
reflecting a lower interest rate environment, has impacted the asset
values tested for impairment.
-- The following price and margin outlook have been assumed for impairment
testing:
-- Brent: $35/bbl (2020), $40/bbl (2021), $50/bbl (2022), $60/bbl
(2023) and long-term $60 (real terms 2020)
-- Henry Hub: $1.75/MMBtu (2020), $2.5/MMBtu (2021 and 2022),
2.75/MMBtu (2023) and long-term $3.0/MMBtu (real terms 2020)
-- Average long-term refining margins revised downwards by around 30%
from previous midcycle downstream assumption
-- Based on these reviews, aggregate post-tax impairment charges in the
range of $15 to $22 billion are expected in the second quarter.
Impairment charges are reported as identified items and no cash impact is
expected in the second quarter. Indicative breakdown per segment is as
follows:
-- Integrated Gas $8 -- $9 billion, primarily in Australia including
partial impairment of QGC and Prelude
-- Upstream $4 -- $6 billion, largely in Brazil and North America
Shales
-- Oil Products $3 -- $7 billion across the refining portfolio
-- These impairments are expected to have a pre-tax impact in the range of
$20 to $27 billion. No impairment charge on Goodwill is expected to be
recorded in the second quarter
-- Impairment calculations are being progressed: the range and timing of the
recognition of impairments in the second quarter are uncertain and
assessments are currently ongoing
-- The revised outlook for commodity prices and refining margins could
impact overall deferred tax positions, which will be reviewed after the
finalisation of the operating plan later in 2020
Other
-- Gearing is expected to increase by up to 3% due to the impairments.
Additional impacts to reported gearing levels are expected due to
pensions revaluations associated with the current interest rate
environment along with other usual quarterly movements
-- As per previous disclosures, CFFO price sensitivity at Shell Group level
is still estimated to be $6 billion per annum for each $10 per barrel
Brent price movement
-- Note that this price sensitivity is indicative, is most applicable
to smaller price changes than those in the current environment and
in relation to the full-year results. This excludes short-term
impacts from working capital movements and cost-of-sales
adjustments
-- In order to enhance our disclosures and market communications, a
quarterly press release will be published as of the second quarter 2020,
in addition to the quarterly unaudited results. The quarterly press
release will provide a summary of key messages and key performance
drivers and should not be considered in isolation from, or a substitute
for, financial information presented in compliance with Generally
Accepted Accounting Principles (GAAP). To further simplify market
communications, with effect from the second quarter, "CCS earnings
attributable to shareholders excluding identified items" will be renamed
to "Adjusted earnings" while the definition remains unchanged
Consensus
The consensus collection for quarterly earnings and CFFO excluding
working capital movements, managed by VARA research, is scheduled to be
opened for submission on July 8, 2020, closed on July 22, 2020, and made
public on July 23, 2020.
Royal Dutch Shell plc
Enquiries:
Media:
International +44 (0) 207 934 5550
Americas +1 832 337 4355
Cautionary Note
The companies in which Royal Dutch Shell plc directly and indirectly
owns investments are separate legal entities. In this announcement
"Shell", "Shell Group" and "Royal Dutch Shell" are sometimes used for
convenience where references are made to Royal Dutch Shell plc and its
subsidiaries in general. Likewise, the words "we", "us" and "our" are
also used to refer to Royal Dutch Shell plc and its subsidiaries in
general or to those who work for them. These terms are also used where
no useful purpose is served by identifying the particular entity or
entities. "Subsidiaries", "Shell subsidiaries" and "Shell companies"
as used in this announcement refer to entities over which Royal Dutch
Shell plc either directly or indirectly has control. Entities and
unincorporated arrangements over which Shell has joint control are
generally referred to as "joint ventures" and "joint operations",
respectively. Entities over which Shell has significant influence but
neither control nor joint control are referred to as "associates". The
term "Shell interest" is used for convenience to indicate the direct
and/or indirect ownership interest held by Shell in an entity or
unincorporated joint arrangement, after exclusion of all third-party
interest.
This announcement contains forward-looking statements (within the
meaning of the U.S. Private Securities Litigation Reform Act of 1995)
concerning the financial condition, results of operations and businesses
of Royal Dutch Shell. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements.
Forward-looking statements are statements of future expectations that
are based on management's current expectations and assumptions and
involve known and unknown risks and uncertainties that could cause
actual results, performance or events to differ materially from those
expressed or implied in these statements. Forward-looking statements
include, among other things, statements concerning the potential
exposure of Royal Dutch Shell to market risks and statements expressing
management's expectations, beliefs, estimates, forecasts, projections
and assumptions. These forward-looking statements are identified by
their use of terms and phrases such as "aim", "ambition", "anticipate",
"believe", "could", "estimate", "expect", "goals", "intend",
"may", "objectives", "outlook", "plan", "probably",
"project", "risks", "schedule", "seek", "should", "target",
"will" and similar terms and phrases. There are a number of factors
that could affect the future operations of Royal Dutch Shell and could
cause those results to differ materially from those expressed in the
forward-looking statements included in this announcement, including
(without limitation): (a) price fluctuations in crude oil and natural
gas; (b) changes in demand for Shell's products; (c) currency
fluctuations; (d) drilling and production results; (e) reserves
estimates; (f) loss of market share and industry competition; (g)
environmental and physical risks; (h) risks associated with the
identification of suitable potential acquisition properties and targets,
and successful negotiation and completion of such transactions; (i) the
risk of doing business in developing countries and countries subject to
international sanctions; (j) legislative, fiscal and regulatory
developments including regulatory measures addressing climate change;
(k) economic and financial market conditions in various countries and
regions; (l) political risks, including the risks of expropriation and
renegotiation of the terms of contracts with governmental entities,
delays or advancements in the approval of projects and delays in the
reimbursement for shared costs; (m) risks associated with the impact
pandemics, such as the COVID-19 (coronavirus) outbreak; and (n) changes
in trading conditions. No assurance is provided that future dividend
payments will match or exceed previous dividend payments. All
forward-looking statements contained in this announcement are expressly
qualified in their entirety by the cautionary statements contained or
referred to in this section. Readers should not place undue reliance on
forward-looking statements. Additional risk factors that may affect
future results are contained in Royal Dutch Shell's Form 20-F for the
year ended December 31, 2019 (available at www.shell.com/investor and
www.sec.gov). These risk factors also expressly qualify all
forward-looking statements contained in this announcement and should be
considered by the reader. Each forward-looking statement speaks only as
of the date of this announcement, June 30, 2020. Neither Royal Dutch
Shell plc nor any of its subsidiaries undertake any obligation to
publicly update or revise any forward-looking statement as a result of
new information, future events or other information. In light of these
risks, results could differ materially from those stated, implied or
inferred from the forward-looking statements contained in this
announcement.
We may have used certain terms, such as resources, in this announcement
that the United States Securities and Exchange Commission (SEC) strictly
prohibits us from including in our filings with the SEC. Investors are
urged to consider closely the disclosure in our Form 20-F, File No
1-32575, available on the SEC website www.sec.gov.
LEI number of Royal Dutch Shell plc: 21380068P1DRHMJ8KU70
(END) Dow Jones Newswires
June 30, 2020 02:15 ET (06:15 GMT)
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