Oil and gas industry giant Shell has announced that the company will write off $4-$5 billion in assets following its exit from Russia in the wake of the Ukraine invasion.
Shell also warns investors that the volatility of energy prices during the first quarter of 2022 could negatively impact cash flow.
This means that the recent invasion has left companies scrambling to adjust to the major shifts in the energy markets despite the surge in oil and gas prices.
This announcement offers an early glimpse into the potential financial impact the Russian invasion will have on the Western world.
In the announcement, Shell states: “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.”
What Does This Mean For the Western World?
Many western countries are leaving Russia, despite massive financial hits, to minimize any reputational damage following the war on Ukraine. However, it allows them to reevaluate how Russian oil and gas operations fit in with plans to become more environmentally and economically stable.
In fact, the invasion of Ukraine is being used as a case study when it comes to the fossil fuel debate in Canada and is being used by oil and gas sector advocates who believe that Canada must grow its domestic fossil fuel sector to ensure energy security.
However, environmentalist groups such as Greenpeace Canada is hoping the situation will usher in the end of oil and gas and instead motivate governments to seek alternative sources of energy.
Ultimately, lobby groups such as the Canadian Association of Petroleum Producers (CAPP) are calling on the federal government to make a commitment to grow the development of the oil and gas industry in Canada.
Shell Makes Apology Regarding Purchase of Discounted Russian Oil
Prior to its announcement of leaving Russian oil behind and writing off $5 billion, Shell publicly apologized for continuing to buy heavily discounted Russian oils two weeks after the beginning of the Ukrainian invasion.
Since then, the company has committed to no longer purchasing Russian crude oil and will close its service stations, lubricants operations, and aviation fuels in Russia as well as exit its joint ventures with Russian oil company Gazprom.
Divestment Versus Reputational Damage
Although Shell’s share price fell by over 1%, investment experts believe that the share price will remain resilient given that the negative impact of divestment is nothing compared to the damage that could be caused to their reputation if they didn’t sever ties with Russia.
However, it is also important to note that Shell will also benefit from rising energy prices.
On May 5th, Shell will announce the results of its first quarter and is expected to separate the profitability of its renewable energy solutions from its gas unit.
How Do Canadians Feel About This?
It’s no surprise that a portion of the Canadian population will always be opposed to fossil fuels, while others will always believe that the world needs more Canadian gas and oil.
However, there is also a segment of Canadians that are falling somewhere in the middle, whose views are likely to be swayed based on the increase in gas prices as the Ukrainian crisis continues.
Needless to say, major oil and gas players are preparing for the long haul, with most companies having no plans to reunite with Russia.