Shell posts massive loss of US$18.1b due to virus-hit oil market

London

ANGLO-DUTCH energy major Royal Dutch Shell on Thursday posted a colossal net loss of US$18.1 billion for the second quarter, blaming massive asset writedowns on the coronavirus-hit oil market, and flagged that job cuts are on the way.

The performance, contrasting sharply with profit after tax of US$3 billion a year earlier, was sparked by a huge US$16.8 billion charge on chronic fallout both from the Covid-19 outbreak and collapsing oil prices.

The vast charge was taken "as a result of revised medium- and long-term price and refining margin outlook assumptions in response to the Covid-19 pandemic and macroeconomic conditions, as well as energy market demand and supply fundamentals", Shell said in a results statement.

The dire performance meanwhile reflected lower prices for oil, liquefied natural gas (LNG) and gas, while it was also adversely impacted by lower refining margins and oil products sales volumes.

Production dipped 6 per cent to 3.4 million barrels of oil equivalent per day in the reporting period - and is forecast to drop further in the third quarter.

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"Shell has delivered resilient cash flow in a remarkably challenging environment," said chief executive Ben van Beurden in Thursday's statement. "We continue to focus on safe and reliable operations and our decisive cash preservation measures will underpin the strengthening of our balance sheet."

He indicated that job cuts could be on the way in the coming months. "We will probably see a resizing," Mr van Beurden told reporters on a conference call when asked about cutbacks.

"We will end up with fewer people. After the summer, it'll be the time to see what comes out in terms of headcount."

Shell had forecast in June that it would face a charge of between US$15 billion and US$22 billion in the second quarter, after crude futures had suffered a spectacular crash on Covid-19 fallout, the Saudi-Russia price war and oversupply.

Both Shell and British rival BP, which reports its earnings next week, have opted to book charges in the second quarter on sustained coronavirus fallout that ravaged the world's appetite for crude oil.

Shell had already plunged into the red in the first quarter on the oil price crash, which prompted it to cut its shareholder dividend for the first time since the 1940s.

The Covid-19 outbreak has also slammed the brakes on the global economy and savaged oil-intensive industries. The deadly outbreak also sent oil prices off a cliff from March onwards - and even caused them briefly to turn negative in April.

Prices have since rebounded sharply on an easing global crude supply glut and as governments relax lockdowns and businesses slowly reopen. Crude futures currently stand at about US$40 per barrel, which is still well down on the same stage last year.

BP, which is axing around 10,000 jobs or 15 per cent of its global workforce in response to virus turmoil, decided in June to sell its petrochemical business to privately-owned rival Ineos for US$5 billion to bolster its finances.

Shell has yet to take such drastic action, but announced in March that it will cut operating costs by US$3 billion to US$4 billion over 12 months, and reduce its annual spending by one-fifth to US$20 billion. AFP