Shell Exit From Russia Could Cost up to $5 Billion in Losses, Oil Giant Says

A Shell gas station sign in Milton Keynes, Britain, on Jan. 5, 2022. Andrew Boyers/Reuters

Shell is set to take a $4 to $5 billion hit from exiting Russia in the wake of its invasion of Ukraine, the company announced on April 7.

The oil giant announced early in March that it planned to pull the plug on operations in Russia and would exit its joint ventures with Gazprom, the Russian state-owned energy corporation, and its related entities, and withdraw from the 50 percent stake it holds in Salym Petroleum Development and the Gydan energy venture, two projects in Siberia.

The company would also depart with its 27.5 percent stake in the Sakhalin-II liquefied natural gas facility off Russia’s east coast, it stated.

Previously, Shell said it intended to end its involvement in the controversial Nord Stream 2 pipeline project.

In an April 7 statement, the company said it would write off between $4 and $5 billion in the value of its assets following the move.

“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 stated. “These charges are expected to be identified and therefore will not impact Adjusted Earnings.”

Further details of the impact of ongoing developments in Ukraine will be set out in Shell’s first quarter 2022 earnings report, which will be published on May 5, according to the company.

Shell, with Russian assets that only accounted for less than 5 percent of its global oil and gas production in 2020, had previously stated that the Russia write-downs would reach roughly $3.4 billion.

The oil giant previously came under fire for purchasing a heavily discounted consignment of Russian oil just two weeks after the Moscow-led invasion of Ukraine on Feb. 24 and subsequently announced that it was withdrawing from its involvement in all Russian hydrocarbons.

“We are acutely aware that our decision last week to purchase a cargo of Russian crude oil to be refined into products like petrol and diesel—despite being made with security of supplies at the forefront of our thinking—was not the right one and we are sorry,” Shell CEO Ben van Beurden said in a March announcement.

“As we have already said, we will commit profits from the limited, remaining amounts of Russian oil we will process to a dedicated fund. We will work with aid partners and humanitarian agencies over the coming days and weeks to determine where the monies from this fund are best placed to alleviate the terrible consequences that this war is having on the people of Ukraine.”

In its April 7 statement, the oil giant said its cash flow from operations 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,” which it said reflects the “unprecedented volatility in commodity prices prevailing up to the end of the quarter,” among other things.

However, trading and optimization profits are expected to increase compared to the fourth quarter, while production from the upstream business is expected to be between 1.90 million and 2.05 million oil-equivalent barrels per day.

Marketing results for oil products are also expected to be in line with the previous quarter, and sales volumes are expected to be between 2,200 and 2,600 thousand barrels per day. Refining and trading results will be significantly higher, according to Shell.

Shell’s share price fell by 1.38 percent on April 7.