Shell Updates Q4 Outlook and Writes Down Assets

Shell updated its fourth quarter outlook today stating that it expects post-tax charges relating to impairments, asset restructuring and onerous contracts to be between $3.5 and $4.5 billion in the fourth quarter. The update is based on prevailing commodity prices and forward curves, with further volatility until the end of the year likely to impact earnings and Cash Flow from Operations (CFFO).

This is not the first write-down announced by Shell (RDS.A) this year. Shell wrote-down the value of its liquefied natural gas (LNG) portfolio by around $1 billion in October, which followed a $16.8 billion write-down in the second quarter.

Expectations across the board for the fourth quarter are being revised downward with the fallout from the coronavirus, as well as hurricane and other weather conditions continuing to impact production and capacity utilization negatively.

Shell expects adjusted earnings for its corporate segment to be a net expense of $900 – $975 million for the fourth quarter, impacted by unfavorable movements in deferred tax positions. (See RDS.A stock analysis on TipRanks)

Scotiabank analyst Paul Cheng reiterated his Buy rating on the stock a month ago, raising his price target from $38 to $45, (21% upside potential). Cheng remains positive and believes that major oil stocks have room to run as oil prices recover.

Overall, consensus among analysts is a Moderate Buy based on 6 Buys and 1 Sell. The average price target of $41.94 implies an upside potential of around 12% over the next 12 months.