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Shell to write off up to $5bn on Russia exit

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Shell
Shell said on Thursday that it was obliged to keep buying from Russia under previously-signed contracts. Photo: STR/NurPhoto via Getty Images

Energy stalwart Shell (SHEL.L) has warned that its exit from Russia could cost it as much as $5bn (£3.8bn) in the first three months of this year.

Shell will write off between $4bn and $5bn in the value of its assets, but the post-tax impairments will not impact the company's earnings, it said in an update ahead of its earnings announcement in May.

Thursday's announcement offers a first glimpse of the potential financial hit to western oil companies withdrawing from the country following its invasion of Ukraine.

"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 $5bn," Shell said in a statement Thursday.

The company, which is valued at around $210bn, had previously said the Russia writedowns would reach around $3.4bn.

Read more: Shell to exit Russian gas ventures

Shell said it will provide details of the "accounting treatment and impact of ongoing developments" at the first quarter 2022 results announcement.

Shares in Shell fell 1.5% on the news in early trade on Thursday in London.

Shell shares declined 1.5% in early trade on Thursday in London. Chart: Yahoo Finance
Shell shares declined 1.5% in early trade on Thursday in London. Chart: Yahoo Finance

In March, Shell was forced to apologise after it continued buying Russian oil at a huge discount despite a wider boycott of the Kremlin’s energy. This led to the company announcing it would stop buying Russian energy products and cutting all remaining ties with the Kremlin.

The FTSE 100 (^FTSE) oil giant pulled out of its joint ventures with Russian energy giant Gazprom. The move saw the company pull out of its 27.5% stake in the Sakhalin II liquefied natural gas facility, its 50% stake in the Salym Petroleum Development and the Gydan energy venture.

It also terminated its involvement in the Nord Stream 2 pipeline project, in which it held a 10% stake worth $1bn.

Read more: BP to offload stake in Rosneft and take $25bn hit

Despite pulling out, Shell said on Thursday that it was obliged to keep buying from Russia under previously-signed contracts, but that it would no longer buy oil on the so-called spot market. It will also shut its service stations, aviation fuels and lubricants operations in the country.

Rival BP (BP.L) had announced it would divest its nearly 19.75% stake in Russia’s state-controlled producer Rosneft (ROSN.ME) a day before Shell's exit, which will result in charges of up to $25bn.

Other energy firms, including Norway’s Equinor (EQNR) also cut ties with their Russian partners.

The Ukraine war has seen benchmark crude prices surge to an average of more than $100 a barrel in the first quarter of 2022, their highest level since 2014, while European gas prices hit a record high.

Brent crude (BZ=F) rose 1.2% to $102.32 a barrel. US light crude (CL=F) was 1.3% higher to $97.43 in electronic trading on the New York Mercantile Exchange at the time of writing.

Watch: Why are gas prices rising?

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