Oil major Royal Dutch Shell (RDSB) fell 6% to £12.61 as it gave a pretty shocking preview of its results for the fourth quarter of 2020.
The company said it expected to book net charges of between $3.5 billion and $4.5 billion in the quarter, in relation to impairments, asset restructuring and onerous contracts.
Shell said the charges were linked to its upstream business, including a partial impairment of the Appomattox asset in the US Gulf of Mexico, plus its oil products and integrated gas businesses.
The company also said that adjusted earnings at its upstream business were expected to show a loss ‘in the current price environment’.
Production at that business was expected to be between 2.275 billion and 2.350 billion barrels of oil equivalent per day, reflecting hurricane impacts in the US Gulf of Mexico and the effect of mild weather in Northern Europe.
In the integrated gas business, production was expected to be between 900,000 and 940,000 barrels of oil equivalent per day, with LNG liquefaction volumes of between 8 million and 8.6 million tonnes.
In the oil products business, realised gross refining margins were expected to be slightly improved compared with the third quarter 2020 but refinery utilisation is expected to be between 72% and 76%.
WHAT ABOUT THE DIVIDEND?
AJ Bell investment director Russ Mould commented: ‘Historically being an integrated business, with involvement in all facets of the energy sector from oil exploration through to selling fuel at the pump, has helped Shell during periods of market turmoil.
‘For example, its refining business can benefit from lower prices of crude oil as it lowers the cost for the feedstock it uses to create petrol, jet fuel and other refined products.
‘Coronavirus is different thanks to the scale of the collapse in demand, with its refineries running at just three quarters of their capacity.’
Mould notes the longer-term threat posed by the shift away from fossil fuels, adding: ‘Like other big oil companies, Shell is attempting to position itself at the vanguard of this energy transition but its capacity to do so relies on cash flow generated from its traditional businesses which is drying up thanks to the pandemic.
‘All of which means the destiny of its dividend, already cut by three quarters in 2020, remains at best in question as we enter 2021.’
