BAKU, Azerbaijan, March 12
By Leman Zeynalova – Trend:
The price environment could weaken if the impact of the coronavirus grows or recession fears materialize, and/or OPEC and the non-OPEC resource holders relax their production agreement, Trend reports with reference to Royal Dutch Shell.
The price environment could also weaken if other non-OPEC producers, such as US shale producers, effectively deliver more and cheaper oil to the market, the company said in its report.
“In a low oil and gas price environment, we would generate less revenue from our Upstream and Integrated Gas businesses, and, as a result, parts of those businesses could become less profitable, or could incur losses. Low oil and gas prices have also resulted and could continue to result in the debooking of proved oil or gas reserves, if they become uneconomic in this type of price environment,” said Shell.
The report shows that prolonged periods of low oil and gas prices, or rising costs, have resulted and could continue to result in projects being delayed or cancelled.
“Assets have also been impaired in the past, and there could be impairments in the future. Low oil and gas prices could also affect our ability to maintain our long-term capital investment program and dividend payments. Prolonged periods of low oil and gas prices could adversely affect the financial, fiscal, legal, political and social stability of countries that rely significantly on oil and gas revenue. In a high oil and gas price environment, we could experience sharp increases in costs, and, under some production-sharing contracts, our entitlement to proved reserves would be reduced,” said Shell.
The company said higher prices could also reduce demand for its products, which could result in lower profitability, particularly in the company’s Downstream business.
“Also, higher prices can result in more capacity being built which results in an oversupply of products that can negatively impact our LNG and Chemicals business. Accordingly, price fluctuations could have a material adverse effect on our earnings, cash flows and financial condition.”
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