Dutch Oil Giant, Shell posts US$18.4bn loss amid oil price crash and corruption allegations

GLOBAL – Royal Dutch Shell, one of the world’s largest upstream oil companies has released its Q2 2020 results, reporting a record US$18.4bn loss.

This is a colossal drop compared to the profit of US$3.5bn recorded during the same period last year.

The Oil major has been operating in a challenging business environment which was accentuated by a crash in international prices that saw the price of crude oil fall to below zero from a high of US$70 at the start of the year.

To cut down its losses, Royal Dutch Shell CEO, Ben van Beurden, said the company had the option to maintain its capital expenditure cuts this year into future years if necessary.

Shell cut its capital spending budget for this year in March from around $25bn to $20bn and also significantly doubled down on its exploration drilling plans for this year from a high of 77 wells to a low of 22.

The company’s debt gearing ratio rose to 32.7 per cent at the end of the first half of 2020, up from 28.9 per cent at the end of Q1 and 27.6 per cent at the end of June 2019.

Van Beurden further noted that  the company had generated US$2.6bn of cash flow from operations in Q2, down from $11bn a year earlier.

Shell was also embroiled in a number of litigations that costed millions of dollars in fines and in asset write-downs.

 In Nigeria for instance, Shell was forced to write down its assets in the Oil Prospecting Licence 245 for an offshore oil block in Nigeria which it holds alongside Eni.

The offshore oil block in Nigeria has been subject to an ongoing investigation by Italian prosecutors who have argued that the acquisition of the oil block was marred by corruption.

Italian prosecutors have asked for oil majors Eni and Shell to be fined and some of their present and former executives, including Eni Chief Executive Officer, Claudio Descalzi, to be jailed in a long-running trial over alleged corruption in Nigeria.

Shell also suffered a post-tax impairment charge of $4.658bn which it says was “mainly related to unconventional assets in North America, assets offshore in Brazil and Europe, a project in Nigeria and an asset in the U.S. Gulf of Mexico.

The company further warned that the outlook for oil demand continued to be uncertain and that its integrated gas unit faced a greater financial hit in Q3 due to a lag in the impact of oil prices on oil-linked contracts.

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