Few companies could write down the value of their assets by $16.8bn (£12.9bn) in a single quarter and live to tell the tale.
Royal Dutch Shell, though, is not just any other company.
Europe’s biggest oil company today showed the scars of the slowdown in global GDP in the wake of the COVID-19 pandemic – a slowdown which, along with an oil price war between Russia and Saudi Arabia sparked a crash in crude prices.
Depending on how you measure the numbers, Shell either reported its first quarterly loss since 2015, or it did not.
Taking into account the write-downs, which are a non-cash item in the accounts, Shell made a loss of $18.4bn (£14bn) on the standard industry measurement in April, May and June.
That compared with a profit of $3bn (£2.3bn) during the same months last year.
Stripping out the write-downs, Shell reported earnings of $638m (£489m) for the quarter, down from $3.5bn (£2.7bn) during the same period last year.
This was actually better than expected because many investors had anticipated that, on this measure, Shell would lose $674m (£516m).
That it did not reflected what Jessica Uhl, the chief financial officer, described as a “spectacular” performance from Shell’s oil product and crude oil trading operations.
There was immense volatility in oil and gas prices during the quarter but, because of its position in the market, Shell had insights that enabled it to react quickly to movements.
It was able, for example, to rapidly switch away from producing jet fuel in its refineries in response to the decline in air travel – while its traders positioned themselves in the market accordingly.
Nearly half of the write-downs today, which reflect Shell’s expectation that oil and gas prices will now be significantly weaker during the next 30 years than it was previously assuming, related to liquefied natural gas projects in Australia that were acquired with the company’s blockbuster £47bn takeover of UK-listed BG Group in 2015.
The company also wrote down the value of some refining assets in Europe and North America and assets in US shale, Brazil, Nigeria and the Gulf of Mexico.
But Shell was also hit on an underlying basis by weaker sales of refined products – particularly jet fuel – and, of course, lower oil and gas prices.
The company responded by capital expenditure.
It has already, as previously announced, cut its dividend for the first time since the war.
Ben Van Beurden, the chief executive, said Shell had weathered the most difficult quarter in living memory but warned that the company would be operating in an unstable environment for some time to come.
He added: “It’s early days. We are indeed probably going to live with this for some time to come.
“There’s no doubt in my mind that the world will settle in a different place and demand [for oil and gas] will take a long time to recover if it recovers at all.”
Shell, whose ‘A’ shares fell by more than 5%, can console itself it is not alone in going through a tough time.
Total, the French oil major, wrote down the value of its assets by $8bn (£6bn) this week and today reported a 96% fall in second quarter net profits to $126m (£96m).
Exxon Mobil, America’s largest oil company, was reported to be scrambling to try and avoid cutting its dividend to shareholders.
Big spending cuts and job losses are likely there.
Chevron, another major US player, has been selling assets in order to preserve its pay-out. Both report results on Friday.
That leaves BP which, so far, has resisted cutting its dividend.
The expectation, however, is that it too will reduce the pay-out next week.
The cuts to dividends are but one of the many questions investors have for the oil majors at present.
The European players in particular have been clear about the need to invest heavily to support the transition to a low carbon world and the cash flow generated by existing fossil fuel operations were supposed to underpin the investment involved.
Lower oil and gas prices eat into that cash flow.
BP has indicated that it will respond by leaving some oil in the ground that it would have previously extracted,but that also puts balance sheets under pressure at a time when the borrowings of the big oil companies are starting to come under closer scrutiny by the ratings agencies.
It all points to a gruelling few years of further cost-cutting, asset sales and, yes, more write-downs.