Oil major suffers $800 million hit, revises Q1 production guidance

Oil major, Shell, yesterday, trimmed its estimated oil and gas production for the first quarter of 2020, warning of major uncertainty over the value and demand for its fuels due to the growing coronavirus pandemic.

Similarly the oil giant will write down up to $800m (£648.8m) in impairment charges in the first quarter of 2020 due to the global collapse in oil prices, the Anglo-Dutch firm warned today.

Updating its Q1 guidance, Shell said it expects to report upstream production of between 2.65 million-2.72 million b/d of oil equivalent in the first quarter and between 920,000-970,000 boe/d of integrated gas for LNG.

It had previously guided for upstream production of between 2.63 million-2.76 million boe/d and integrated gas output of 950,000-980,000 boe/d in Q1.

Oil prices have collapsed by more than 50% since to the start of the year to near 18-year lows and Shell said the weak macro environment has impacted its upstream margins.

“As a result of COVID-19, we have seen and expect significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products,” Shell said in a statement.

The company estimates that its earnings sensitivity to the oil price collapse is $6 billion/year for each $10/b Brent crude price movement.Shell said it expects its LNG liquefaction volumes to be 8.8 million-9.2 million mt in the quarter, down from 9 million-9.5 million mt previously.

Oil products sales are expected to be 6 million-7 million b/d, down from the previous guidance of 6.4 million-7 million b/d. Shell said its marketing margins in the first quarter are expected to remain strong, however, as the impact on demand from COVID-19 is “not expected to be significant” in the first quarter.

Refining margins are expected to be weaker compared with the fourth quarter of 2019 while refinery utilization is expected to be between 80% and 84%, with availability expected to be between 93% and 96%.

The consensus estimates for Shell’s Q1 adjusted earnings are currently $2.52 billion, down from $5.3 billion in the year-ago period. Shell is scheduled to release its full Q1 earnings results on April 30.