Shell (RDS.A) Stock Down 4%, Shell Warns of $22B Hit on Assets from Oil and Gas Slump

UTC by Steve Muchoki · 3 min read
Shell (RDS.A) Stock Down 4%, Shell Warns of $22B Hit on Assets from Oil and Gas Slump
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Royal Dutch Shell stock dropped 4% today after the company announced that it is anticipating to write down assets worth up to $22 billion in the coming quarters.

After reviewing the impact by the ongoing coronavirus pandemic on its business, Royal Dutch Shell Plc (NYSE: RDS.A) has announced that it will write down assets worth between $15 billion and $22 billion in the second quarter. This comes as the demand for crude oil remains low globally since most businesses remain shut down to control the spread of the COVID-19 virus. Shell stock is down.

With the numbers still high in most countries especially the United States, and the vaccine still months away from approval, things might get even tougher for the oil and gas industry.

However, there is dim light ahead as a number of vaccines like the remdesivir from Gilead Sciences Inc (NASDAQ: GILD) indicate signs of significantly suppressing COVID-19 effects on patients, hence offering a quick recovery. This might in turn reciprocate to the fast reopening of businesses in different parts that will eventually rise the oil and gas demand.

Two months ago, Shell cut its dividend for the first time since World War II by 66% and announced a goal to reduce greenhouse gas emissions to net-zero by the next five years.

“Shell believes in an electric-powered future world but investment in renewables represents just 5% of its annual investment in energy,” said Noah Riley in a Seeking Alpha article.

According to key statistics on its shares, they have been down 41.7% year to date and around 50% in the past one year. These figures are likely to continue rising as the coronavirus deepens its effect in the industry overall.

The volatility in the past 52 weeks has seen the shares record lows of $946.1 and highs of $2,637.5. However, the company seems to have cash to burn and keep its operations running presumably in the coming quarters to see it through the pandemic.

Shell Stock Shaky Future

In case the coronavirus extends to beyond unreasonable time, the bleeding might be uncontrollable causing probably bankruptcy in most businesses.

Shell is anticipating the international benchmark Brent crude prices to average $35 a barrel in the coming quarters, which is down from a previous forecast of $60 per barrel.

In addition, the company lowered its Brent price forecast to $40 in 2021 and $50 in 2022. However, the figures are subjected to change as the OPEC members might change the production rate depending with the global demand in the coming quarters.

According to its statement, the company believes Henry Hub gas prices will average $1.75 per million British thermal units in 2020, before rising to $2.5 over 2021 and 2022, and $2.75 in 2023.

At the time of writing, Shell stock is trading at around 32$ (-4%).

With this level of uncertainty, the shares face tough times ahead, which might only be resolved by coronavirus cure.

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Steve Muchoki
Author Steve Muchoki

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