Shell raises Russia exit cost to $5 billion and forecasts higher oil income

Shell will write off up to US $5 billion in the value of its assets after pulling out of Russia following the country’s invasion of Ukraine, the British oil major said in a statement on Thursday, raising the stakes in one of the first major assessments of the financial impact for global energy companies of exiting Russia.

“For the first quarter 2022 results, the post-tax impact from impairment of non-current assets and additional charges (e.g. write-downs of receivable, expected credit losses, and onerous contracts) relating to Russia activities are expected to be $4 to $5 billion. These charges are expected to be identified and therefore will not impact Adjusted Earnings,” Shell said in a statement.

The company is scheduled to announce its quarterly earnings report on May 5th and indicated that the prevailing volatility in commodity prices has led to larger ranges in the financial guidance for the quarter.

Shell, the world’s largest liquefied natural gas trader with a market capitalisation of around $210 billion, was forced to apologise on March 8 for buying a heavily discounted consignment of Russian oil two weeks after Russia’s invasion. It subsequently announced that it was withdrawing from its involvement in all Russian hydrocarbons.

Shell had earlier estimated the cost of Russia writedowns at $3.4 billion. A Shell spokesperson told Reuters on Thursday that the increase was due to additional potential impacts around contracts, writedowns of receivables, and credit losses in Russia.

The company expected earnings from LNG trading to be higher in the quarter from the previous three months, while income from oil trading is set to be “significantly higher” in the quarter, Shell said in a statement.

However, the company warned that cashflow during the quarter would be negatively impacted by “very significant” outflows of around $7 billion as a result of changes in the value of oil and gas inventories.

Shell sold an average of 4.3 million barrels in fuel per day in the quarter, down from 4.45 million bpd in the previous quarter, the company said.