First-quarter charges follow oil major’s decision to cut Russia ties in response to Ukraine invasion

Shell PLC said it ex­pects to book ac­count­ing charges of up to $5 bil­lion in the first quar­ter re­lated to its de­ci­sion to exit its Rus­sia op­er­a­tions, in­clud­ing joint ven­tures with en­ergy gi­ant Gazprom PJSC, in the wake of Rus­sia’s in­va­sion of Ukraine.

The Lon­don-based oil ma­jor pro­vided the guid­ance Thurs­day ahead of quar­terly earn­ings sched­uled for May 5.

Shell said on Feb. 28 that it would end its in­volve­ment in fi­nanc­ing the Nord Stream 2 nat­ural-gas pipe­line project. Shell also said it would exit its 27.5% stake in a ma­jor off­shore gas project in Rus­sia’s Far East that is 50% owned by Gazprom and sup­plies around 4% of the world’s liq­ue­fied-nat­ural-gas mar­ket. The com­pany said at that time that the value of its non­cur­rent as­sets tied to its Russ­ian ven­tures was about $3 bil­lion.

The range of ex­pected charges Shell pro­vided Thurs­day, of $4 bil­lion to $5 bil­lion, also in­cludes other es­ti­mated knock-on im­pacts of quit­ting its Russ­ian op­er­a­tions. Those in­clude the pos­si­bil­ity of un­paid con­tracts and other credit losses.

That range also en­com­passes Shell’s de­ci­sion an­nounced March 8 to stop all spot pur­chases of Russ­ian crude and phase out its trad­ing and other op­er­a­tions tied to Rus­sia. The com­pany said at the time it had around $400 mil­lion in as­sets tied to those ac­tiv­i­ties. Shell’s Rus­sia as­sets were held as non­cur-rent, re­fer­ring to long-term in­vest­ments not read­ily con­verted to cash.

Shell’s pull­back from Rus­sia came a day af­ter ri­val BP PLC said it would exit its nearly 20% stake in Russ­ian oil pro­ducer Ros­neft. BP warned the move could re­sult in po­ten­tial losses, in­clud­ing write-downs and charges, to­tal­ing up to $25 bil­lion. The com­pany said it would pro­vide de­tails with earn­ings sched­uled May 3.

The oil ma­jors were at the van­guard of what be­came a wave of big West­ern com­pa­nies sev­er­ing ties with Rus­sia amid grow­ing in­ternational con­dem­na­tion of the war, and mount­ing West­ern sanc­tions.

For the big oil com­pa­nies, the rapid de­ci­sions to exit Rus­sia ended re­la­tion­ships built over decades, de­stroy­ing col­lab­o­ra­tions with no clear path for the com­pa­nies to re­coup bil­lions of dol­lars in in­vest­ment. An­a­lysts and in­vestors say they have few op­tions for sell­ing as­sets, with West­ern sanc­tions against Rus­sia mak­ing it dif­fi­cult to find buy­ers.

West­ern oil gi­ants ex­it­ing Rus­sia also in­clude Exxon Mo­bil Corp., which said March 1 it would shut down pro­duc­tion at a mas­sive oil-and-gas project it runs on Sakhalin Is­land in Rus­sia’s Far East.

WSJ

Edit: changed source to WSJ

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