It would cost Shell about $5 billion to exit Russia

Shell has stated that it will write off between $4 and $5 billion in asset value after withdrawing from Russia in the aftermath of the country’s historic invasion of Ukraine.

This was disclosed by the company via a press release titled “Shell first quarter 2022 update note”. This announcement provides a first glimpse of the financial consequences of Western oil giants quitting Russia.

Shell, which has a market capitalization of roughly $210 billion, has stated that the Russia writedowns would amount to around $3.4 billion. According to a Shell representative, the rise was due to extra possible repercussions related to contracts, receivables writedowns, and credit losses in Russia.

Back story

• The beginning of 2022 marked one of the most turbulent periods in the oil and gas industry’s history, with Western companies such as Shell quickly withdrawing from Russia, severing trading ties and winding down joint ventures in the aftermath of Moscow’s invasion of Ukraine.
• Shell has announced the closure of all of its Russian activities, including a major liquefied natural gas project on the Sakhalin peninsula on Russia’s eastern border.
• However, Shell provided no information about the future of its investments in Russian projects.
• The unusual volatility in commodity prices in recent months has driven numerous merchants to the verge, forcing them to increase down payments on oil and LNG cargoes dramatically.
• Shell, the world’s largest LNG trader, said earnings from LNG trading were likely to be higher in the third quarter compared to the previous three months. Oil trade earnings are expected to be “substantially higher” in the third quarter.

What Shell is saying

Shell, in a statement today said, “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,” the report added

Shell’s first-quarter earnings report, due out on May 5, will include more information on the impact of ongoing developments in Ukraine.

On March 8, Shell was compelled to apologize for purchasing a drastically discounted shipment of Russian oil two weeks after Russia’s invasion. It later declared that it was withdrawing from all Russian hydrocarbon projects.

The corporation said that it would no longer buy Russian crude oil and would close its service stations, aviation fuels, and lubricants activities in Russia. The corporation has previously stated that it will terminate its joint ventures with the Russian gas behemoth, Gazprom and its connected organizations.

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