Royal Dutch Shell suffers Q3 loss and finally withdraws from Ukraine

Royal Dutch Shell logo
Source: WikiCommons, author: Nopple

Royal Dutch Shell blamed “unfavorable conditions on the global energy markets” and force majeure for its withdrawal from shale operations in Ukraine. Shell said in June it was negotiating its withdrawal from the deal as “project implementation conditions have been materially changed due to force majeure circumstances,” and last week Ukrainian Energy Minister Volodymyr Demchyshyn confirmed that “Shell has withdrawn from the treaty. The operations on the Yuzivska field are frozen.”

Shell entered into a 50-year production-sharing agreement to explore the Yuzivska field in Kharkov and Donetsk regions in early 2013, but the hostilities between the Ukrainian government forces and pro-Russian separatists, which have erupted in 2014, have put a stop to any operations in the region. Initially, Shale declared force majeure and postponed the project. It has now made the decision to abandon Ukrainian shale completely.

“Shell withdrew after announcing it was no longer interested in the project six months ago. There was a long procedure of backing out of the agreement due to force majeure circumstances,” Mr Demchyshyn said, confirming that Ukraine is still seeking new investors for the project saying that “the company Nadra Yuzivska will be liquidated if we don’t find new investors by the end of the year.”

Yuzivska field is not the only Ukrainian prospective shale area. Another one is the Oleska field in the western part of the country – away from the armed conflict – the future of which is still being negotiated with Chevron.

Apart from obviously unfavourable political situation, Shell’s exit from Ukraine might have something to do with its dismal financial results. On Thursday, the company posted its worst third quarter results in over a decade, booking a $7.41 billion loss attributable to shareholders; the largest that Shell has reported in at least a decade and a half. Shell’s third-quarter revenue dived from $107.9 billion to $68.7 billion while adjusted profits slumped 70% to $1.8 billion.

“While our cash flow and our operating performance in the quarter were strong, the headline numbers we’re reporting today include substantial charges. These charges reflect both a lower oil and gas price outlook and the firm steps we are taking to review and reduce Shell’s longer-term option set,” CEO Ben van Beurden said.

Amongst Shell’s abandoned project – apart from the Ukrainian shale, which was a relatively minor decision – there was the Alaska project, which resulted in a charge of $2.6 billion, and the halting construction of its Carmon Creek thermal oil sands venture in Canada, which cost the company $2 billion.

“We have halted exploration activities offshore Alaska, and stopped the construction of the Carmon Creek in-situ oil project in Canada. These are difficult, but impactful decisions. I am determined that Shell will become a more focused and competitive company as a result,” van Beurden said.

Another major loss on Shell’s books is a $2.3 billion hit to its North American shale gas business.

Despite the bad news, Van Beurden assured that the proposed £39.8 billion takeover of BG Group, announced in April will not be affected.

The deal has been approved by the European Union’s antitrust regulator, the U.S. Federal Trade Commission and Brazilian regulators and is currently waiting approval from the Australian Competition and Consumer Commission (ACCC) and Chinese authorities.

To learn more about Ukraine’s shale development, please read our interview with Mykola Shlapak.

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