Shell to reverse up to $4.5B in writedowns of oil and gas assets

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Shell (NYSE:SHEL) said Thursday it will reverse $3.5B-$4.5B in prior writedowns on oil and gas assets in Q2, after it raised its mid-term and long-term outlook for energy prices to reflect energy market demand and supply fundamentals.

In a corporate update before releasing Q2 results on July 28, Shell (SHEL) said its indicative refining margins nearly tripled over the period to $28.04/bbl from $10.23/bbl in Q1 and $4.17/bbl in the year-earlier quarter.

Shell (SHEL) said the surging margins likely added $800M-$1.2B to the results of its refined products division compared with Q1, as gasoline prices broke records in several countries.

The company also said it expects Q2 production of 930K-980K boe/day and liquid natural gas liquefaction volumes of 7.4M-8M metric tons.

"Poor management decisions make for a steep discount" in Shell (SHEL) shares, but the "macroeconomic situation points to years of solid cash flows from upstream oil and gas and Shell's LNG shipping business," Harrison Schwartz writes in a bullish analysis posted on Seeking Alpha.

Comments

[learnmoney]

Not in the UK as Shell is now based in England.
I used to do this sort of transaction as it acted as a hidden pool of profit.
Go back and you will see that the OZ LNG plant was written down by milions and millions.
Hope this helps.

[Tom850870]

When did GAAP rules change to allow reversals? I thought once a valuation write down was made, it stuck.

[mattdavis0]

@Tom850870 I think Shell reports under IFRS which allows for reversing impairments.

[Tom850870]

@mattdavis0 Oh, of course, they're furreners. Thanks.

[Gary Gambino]

@Tom850870 you could be right about US GAAP, but it's allowed under IFRS.

www.cpasolved.com/...

[Gideon Oberholzer]

Can you please elaborate on the bad management decisions you refer to?

[danot]

@Gideon Oberholzer I did not mention it on this thread but here is my list of what I thought were recent bad decisions:
1) Closing or selling most of their US refineries - they would have been so much more profitable if they at least kept some of these open (or did not sell these).
2) Selling the Permian assets at a lower valuation.
3) Going outside their expertise by trying to focus on wind and solar.

I am still long SHEL - but dislike the recent direction of the company.

[Steve Rozenblat]

@danot While i don't disagree with #2.

#1, is no one could have expected refinery margins to go up like they did, long term this was a good disposition, as 10-20 years from now, refining gasoline will be a dying business as countries outlaw ICE cars.

#3, and I would say they have expertise in large energy projects, regardless of type of energy. now the timing may have been delayed by the war in Ukraine, but the world is slowly moving towards low/non carbon methods of electricity. Regardless of your politics thats just happening. I see Shell moving to where the puck will be, and not where it is. I'm buying on any weakness.

[danot]

@Steve Rozenblat This has nothing to do with my politics. I just think people are making the wrong decision on "where the puck will be". And Shell management has been one of the greatest fools in this belief. I don't think the world will really be able to upgrade the electric grid to support the number of (or type) of electric cars being "mandated" in 2030. Will people willingly give up their beloved big inefficient SUVs (electric or ICE) to downgrade to a car that the grid can support? We are still planning to build the wrong cars for the future (like the 9,000 pound GM electric hummer). If governments are serious about going all electric in 2030 - most people will need to drive this instead : https://aptera.us/ .
I just don't think most people will be willing to make the switch to a light solar "motorcycle" like 3 wheel vehicle - that would be the only option that most grids could support.

[And Value for All]

Nice 4B of paper profits!
Now pump up that dividend you crooks, it is still half of what it used to be and the company is making a shltload of money

[axel183]

@Andag Value for All agree 100%

[DIV12]

@And Value for All They will dump all that shareholder money into „green energy assets“.

[And Value for All]

@DIV12 I am ok they invest in green energy assets as long as they produce adequate returns. They have people like me who are well paid to analyze ROI, costs, etc. However, they should be doing that after reinstating the distribution at the level it used to be. They have been saying over and over distribution was sustainable at $60 oil (and "sustainable" clearly means they will still have enough capital for growth/replacement capex in what they see fit). They canceled at $20 oil thinking that wasn't just a blip? Stupid, but ok, so it went. And now at $100 oil they do not reinstate that (and possibly pay also a special of what they missed)? That is A ROBBERY to shareholders.

[correct way to invest]

remember certain experts on here yelling that Exxon wont write down their assets. Lesson dont listen to dummies

[Warren Buffett007]

Thats sounds good !

[Jeff Pokorny]

I was raised in a very conservative CPA firm....you don't write down assets for temporary impairments. XOM resisted for a long time. Now you see the write ups coming....

[Old Professor]

@Jeff Pokorny Exactly.

[DrewMcVay]

@Jeff Pokorny Oil was low for what, 7-8 years? It's not like it was a quarterly drop or something that was temporary.

MANY people did not expect oil/gas to be as high as it is now, so much so, that many companies whom do it for a living do not expect them to be that high. I wouldn't pass judgement based on this.

Anyone whom has been through the ups and downs (you have not since you're a CPA), I cannot imagine a down lasting 7-8 years and how awful that would be.

[vooch]

@Jeff Pokorny

Its anyway a non-cash transaction.

[PapaWhisky]

That’s cool