Apart from the weakness in oil and gas prices, Royal Dutch Shell (RDS.A) (RDS.B) has faced a number of challenges in the past year, which is why it has slumped close to its 52-week lows. For instance, the company has been forced to write-off $2.6 billion with respect to its exploration in Alaska and $2 billion for stopping the Carmon Creek oil project in Alberta, Canada.
However, in my opinion, these write-downs are smart moves if we consider the situation unfolding in the crude oil market. Let’s see why.
Changing the portfolio mix for the better
Shell is facing a lot of challenges in the end market that have forced it to either suspend or abort some of its major projects. In Alaska for example, after completing the drilling season by drilling the Burger J well through its target depth safely and well in time, Shell found that it was completely dry. As a result, the company found it uneconomical to operate the well due to its high cost, while the challenging and …show more content…
Announced its third quarter 2015 result on 29th Oct. The Oil giant reported revenue of $ 68.7 billion, down 36 % from $ 107.9 billion in the third quarter 2014. The company reported a net loss of $ 6.1 billion on a current cost of supplies (CCS) basis for the third quarter compared to a $ 5.3 billion profit reported last year for the same quarter. Excluding the one-time items, the company earned $ 1.8 billion, down 70 % from last year’s $ 5.8 billion.
The one-time items for this year’s Q3 included a total charge of $ 7.9 billion of identified items, including $ 2.6 billion in write-offs for Alaska exploration and a $ 2 billion write-down for halting its oil project in Carmon Creek in Alberta, Canada. Out of the $ 7.9 billion of identified items, $ 3.7 billion is because of a revision in oil and gas price outlook. The rest of the charges items i.e. $ 4.2 billion include are due to management actions regarding the longer-term portfolio of the company.
Operational
However, in my opinion, these write-downs are smart moves if we consider the situation unfolding in the crude oil market. Let’s see why.
Changing the portfolio mix for the better
Shell is facing a lot of challenges in the end market that have forced it to either suspend or abort some of its major projects. In Alaska for example, after completing the drilling season by drilling the Burger J well through its target depth safely and well in time, Shell found that it was completely dry. As a result, the company found it uneconomical to operate the well due to its high cost, while the challenging and …show more content…
Announced its third quarter 2015 result on 29th Oct. The Oil giant reported revenue of $ 68.7 billion, down 36 % from $ 107.9 billion in the third quarter 2014. The company reported a net loss of $ 6.1 billion on a current cost of supplies (CCS) basis for the third quarter compared to a $ 5.3 billion profit reported last year for the same quarter. Excluding the one-time items, the company earned $ 1.8 billion, down 70 % from last year’s $ 5.8 billion.
The one-time items for this year’s Q3 included a total charge of $ 7.9 billion of identified items, including $ 2.6 billion in write-offs for Alaska exploration and a $ 2 billion write-down for halting its oil project in Carmon Creek in Alberta, Canada. Out of the $ 7.9 billion of identified items, $ 3.7 billion is because of a revision in oil and gas price outlook. The rest of the charges items i.e. $ 4.2 billion include are due to management actions regarding the longer-term portfolio of the company.
Operational