Shell will be forced to cut up to $4.5billion off the value several assets in Singapore, primarily its refining and chemical facilities.
The London-listed oil giant is expected to take the impairment charge for its final three months last year in the next set of quarterly financial accounts.
A weaker economy and a decline in the ethylene industry in Asia has prompted the company to reduce the value of its facilities in Singapore on Jurong Island, which it plans to sell along with those in Bukom. The company has a refinery that produces 270,000 barrels of oil a day, and a plant which produces one million metric tons of ethylene per year. It underwent a review in terms of strategy last year.
Shell announced that the total impairment charges for its group will be between $2.5 and $4.5 billion before the release of the fourth-quarter results, on 1st February.
Wael Sawan (49), who became chief executive at the beginning of the year, is undergoing a major review of the group’s operations. Sawan, 49, has promised to be “ruthless” in his focus on performance. He is also overhauling the low-carbon strategy of the group as he attempts to close a valuation difference with its oil-focused American counterparts.
The writedowns contrast with the better performance of the group’s Gas Trading business. This is expected to be “significantly” higher than the third quarter due to the greater volatility in wholesale prices. The group’s liquefaction volume guidance has also been improved, now ranging between 6,9 million tonnes and 7,3 million tonnes. This is better than the previous range of 6.7 million to 7.3 millions tonnes.
The forecasts for oil production and gas production were also improved. They now range between 1,830 to 1,930 barrels equivalent per day for the fourth-quarter, compared to the 1,750-1,950 figure that was expected in November.
According to reports, the chemicals business has underperformed in general, as the utilisation rate of manufacturing plants fell to 60 to 64 percent, down from 75 percent during the same time period last year. Shell’s chemical refinery also had lower utilisation rates, between 78 and 82 percent. This was due to planned maintenance in North America.
In the fourth quarter, it is expected that the combined chemicals and product business will have suffered a loss adjusted.
Jefferies analysts said that Shell may be unable to continue its current buyback program due to uncertainty regarding the impact of deductions. This includes the payment of emission certificates in Germany and America. Shell announced its $3.5 billion share-purchase programme in November alongside the third quarter results.
The share price fell by 3.1 percent, or 80p.