With the novel coronavirus pandemic accelerating a global shift away from fossil fuels, almost $90bn from the value of their oil and gas assets was written off by the largest listed oil companies of the world in just the last nine months.
Forecasts for future oil market prices have been significantly slashed by seven of the largest oil firms in the last three financial quarters which has resulted in a series of downgrading of the value of the companies’ assets in oil and gas projects that totals to $87bn.
Downgrades on the value of their assets totaling almost $55bn have been made by oil and gas companies that include the likes of companies including Royal Dutch Shell, BP, Total, Chevron, Repsol, Eni and Equinor in the last three month alone, shows data analyzed by the climate finance think-tank Carbon Tracker.
The growing political support for transition from fossil fuels to cleaner energy sources triggered a series of oil valuation impairments since the end of last year. And with the onset of the pandemic just a couple of month since, that impairment exercise by oil and gas companies has been accelerated as the pandemic severely hit global demand for oil.
In fact the collapse in demand for oil globally has been the sharpest in 25 years because of the lockdown imposed by various governments to prevent the spread of the pandemic. The crashing of demand resulted in the energy commodity markets to touch historic lows.
In April this year, the oil market collapse reached its nadir and oil and gas majors were forced to make a reassessment of their expectations for prices in the coming years.
While BP has slashed its expectations of oil prices by almost 33 per cent to an average of $55 a barrel between 2020 and 2050, Shell has also dropped its expectations to an average of $35 a barrel this year from its previous forecast of $60 a barrel and to $40 next year, $50 in 2022 and $60 from 2023.
A revision of the price forecast by the two companies forced Shell to take a $22.3bn downgrade on its fossil fuel portfolio and BP to announce write off of $13.7bn on its oil and gas assets and both the companies also slashed their shareholder payouts, their first in decades.
An inevitable trend towards lower oil prices had been accelerated by the Cvoid-19 pandemic, said Andrew Grant, Carbon Tracker’s head of oil, gas and mining.
“Covid-19 has certainly done its bit in wiping out value from oil companies’ books, but it’s clear that it has also accelerated a trend of companies changing their longer-term price assumptions to better reflect the realities of the energy transition,” he said.
Government climate policy was singled out to be the reason behind oil valuation downgrades totaling $6.2bn by the French oil company Total and Spain’s Repsol in the last financial quarter of 2019.
“The fact that major European players are writing down assets with reference to the Paris agreement is a very positive shift,” Grant said. “Setting impairment prices in line with a conservative estimate of future fossil fuel demand based on the Paris agreement can only help to avoid wasted capital and increase companies’ resilience.”
(Adapted from The Guardian.com)