Energy sector complies with impairment rules

Some weeks ago, I foreshadowed, that the energy majors would need to impair their gas assets, regrettably it is coming to pass. Led by BP, followed by Shell and is now being considered by Oil Search, Santos, Origin energy and Woodside. This decision reflects a view that what we’re seeing is a reduction in the oil price is not merely a cyclicals shock associated with Covid 19. The issue would appear to be we may have seen peak oil demand as opposed to peak oil supply. Planning numbers of USD 75 – 70 a barrel for Brent oil are being reduced to USD $60 (but not USD 35 of the bottom of Covid 19). In the case of Shell, much of this investment is in Australia including its acquisition of the assets of BG. Earlier this year Shell announced publicly its change in investment policy towards renewable energy assets. Amidst all the challenges the executives of big oil are to be congratulated for their openness and frankness on complying with the accounting policies. This decision no doubt will have huge implications for this global industry and its ability to transform metamorphose itself into big energy. Most importantly they are to be congratulated on delivery of integrity.

Paul Raftery