Shell PLC said it expects to book accounting charges of up to $5 billion in the first quarter related to its decision to exit its Russia operations, including joint ventures with energy giant Gazprom PJSC, in the wake of Russia’s invasion of Ukraine.
The London-based oil major provided the guidance Thursday ahead of quarterly earnings scheduled for May 5. The disclosure gives investors additional clues about the impact Western companies face as a result of moves to divorce themselves from Russia.
Shell said on Feb. 28 that it would end its involvement in financing the Nord Stream 2 natural-gas pipeline project. Shell also said it would exit its 27.5% stake in a major offshore gas project in Russia’s Far East that is 50% owned by Gazprom and supplies around 4% of the world’s liquefied-natural-gas market. The company said at that time that the value of its noncurrent assets tied to its Russian ventures was about $3 billion.
The range of expected charges Shell provided Thursday, of $4 billion to $5 billion, also includes other estimated knock-on impacts of quitting its Russian operations. Those include the possibility of unpaid contracts and other credit losses.
That range also encompasses Shell’s decision announced March 8 to stop all spot purchases of Russian crude and phase out its trading and other operations tied to Russia. The company said at the time it had around $400 million in assets tied to those activities. Shell’s Russia assets were held as noncurrent, referring to long-term investments not readily converted to cash.
Shell’s shares were down 1.9% in early trading in London.
Beyond the impact of the Russia exit, Shell said Thursday it expects to report strong first-quarter earnings in its large liquefied-natural-gas business, as well as from oil and gas trading.
Higher volatility in commodity prices will, though, lead to around $7 billion in cash outflows tied to inventory and other costs. Across the commodities industry, swings in prices fueled by disrupted shipments and supply uncertainties have made holding assets more costly for companies that trade everything from oil and grains to natural gas and metals.
RBC Capital Markets analyst Biraj Borkhataria said the overall LNG and oil-products trading estimates were positive, and that Shell’s chemicals unit—which produces solvents and plastic ingredients for industrial customers—appeared on track to exceed estimates.
Shell’s first-quarter earnings next month for the first time will break out profits from its renewable-energy business, which will no longer be wrapped into the integrated gas business segment. The change in reporting segments reflects an increased focus on lower-carbon energy by investors and companies industrywide.
Shell’s pullback from Russia came a day after rival BP PLC said it would exit its nearly 20% stake in Russian oil producer Rosneft. BP warned the move could result in potential losses, including write-downs and charges, totaling up to $25 billion. The company said it would provide details with earnings scheduled May 3.
The oil majors were at the vanguard of what became a wave of big Western companies severing ties with Russia amid growing international condemnation of the war, and mounting Western sanctions.
For the big oil companies, the rapid decisions to exit Russia ended relationships built over decades, destroying collaborations with no clear path for the companies to recoup billions of dollars in investment. Analysts and investors say they have few options for selling assets, with Western sanctions against Russia making it difficult to find buyers.
Western oil giants exiting Russia also include Exxon Mobil Corp., which said March 1 it would shut down production at a massive oil-and-gas project it runs on Sakhalin Island in Russia’s Far East.
