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Oil Major Shell to Write Off Up to $5 Billion in Assets After Exiting Russia

Shell
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  • Shell has announced that it will write off between $4 and $5 billion in the value of its assets after pulling out of Russia.
  • The announcement offers a first glimpse at the potential financial impact to Western oil majors of exiting Russia.
  • Shell was forced to apologize on March 8 for buying a heavily discounted consignment of Russian oil. It subsequently announced that it was withdrawing from Russia.
Royal Dutch Shell products in Torzhok, Russia.
Andrey Rudakov | Bloomberg | Getty Images
Royal Dutch Shell products in Torzhok, Russia.

Shell has announced that it will write off between $4 and $5 billion in the value of its assets after pulling out of Russia following the country's unprecedented invasion of Ukraine.

Thursday's announcement offers a first glimpse at the potential financial impact to Western oil majors 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," Shell said in a statement Thursday.

"These charges are expected to be identified and therefore will not impact Adjusted Earnings."

Shell had previously estimated that Russia write-downs would reach $3.4 billion.

Further details of the impact of ongoing developments in Ukraine will be set out in Shell's first-quarter earnings report on May 5, the company said.

Shell was forced to apologize 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.

The company said it would no longer purchase Russian crude oil and would shut its service stations, aviation fuels and lubricants operations in Russia. The company had already vowed to exit its joint ventures with Russian gas giant Gazprom and its related entities.

In Thursday's update, Shell also said its cashflow is expected to be hit by "very significant working capital outflows as price increases impacting inventory have led to a cash outflow of around $7 billion."

Divestment 'outweighs reputational damage'

Shell's share price fell 1.8% in early trade, along with that of fellow oil giant BP.

"Despite the eye watering costs, the share price should continue to stay reasonably resilient given the divestment far outweighs the reputational damage which could be caused had it not pulled out," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

Russ Mould, investment director at British digital stockbroker AJ Bell, said the modest fall for Shell "reflects the fact that the company is also pointing to a big benefit from surging energy prices."

He added that BP's fall came "likely on a read-across as investors looked at what it might imply for its much larger Russian footprint."

Shortly after Russia invaded Ukraine, BP announced that it would offload its 19.75% stake in Russian state-controlled oil company Rosneft, after 30 years of operations in the country.

Western oil companies have faced pressure from shareholders and governments to sever ties with Russia, but TotalEnergies CEO Patrick Pouyanne told CNBC in late March that the French company would not write off its assets in Russia as it would effectively mean giving them to Putin "for free."

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