A view shows a board with the logo of Shell at the company’s fuel station near a business centre in Moscow, Russia March 9, 2022.
(Picture: REUTERS)Shell is facing a hit of up to $5 billion (£3.8 billion) on its exit from Russia, the oil and gas giant admitted today.
The company said it would take an impairment of between $4 billion and $5 billion due to writedowns, credit losses and “onerous contracts”. The oil major said adjusted earnings wouldn’t be impacted.
Shell announced plans to quit all joint ventures with Kremlin-controlled Gazprom shortly after the invasion of Ukraine, putting the cost at $3 billion. Last month it bowed to pressure to stop buying Russian oil and gas, and announced plans to shut petrol stations in Russia and stop supplying aviation fuel.
It said today: “Shell has not renewed longer-term contracts for Russian oil, and will only do so under explicit government direction, but we are legally obliged to take delivery of crude bought under contracts that were signed before the invasion.”
The update marks the first detailed estimate of how much the international boycott of Russia could cost energy businesses.
Shell shares dropped 2.3%. BP fell even further, declining 2.4%. Russ Mould, investment director at AJ Bell, said the steeper fall was “likely on a read-across as investors looked at what it might imply for its much larger Russian footprint.”
Susannah Streeter at Hargreaves Lansdown said: “The divestment far outweighs the reputational damage which could be caused had it not pulled out.”
Oil and gas prices have surged in recent weeks amid disruption to international fuel supplies. Higher prices are good for suppliers like Shell but are causing short-term issues.
The company is a big energy user itself and warned that cash flow had been “negatively impacted by very significant working capital outflows”. “Unprecedented volatility in commodity prices” has seen around $7 billion leave the business during the current quarter.
Higher operating costs are a short term issue and Shell said a $10 increase in the value of a barrel of Brent crude should increase profits at its integrated gas and upstream businesses by $3.5 billion across the year. The price of Brent crude has risen by over $20 per barrel since the start of 2022.
The update came as the government set out its long-awaited Energy Security Strategy. The plans will see the UK ramp up wind, solar and nuclear power generation but also features a renewed push for North Sea oil and gas development. The government said this was “recognising the importance of these fuels to the transition and to our energy security”.
