Royal Dutch Shell has secured a $12bn (£9.7bn) loan facility to protect its shareholder payouts against an oil price crisis and the “significant uncertainty” of the coronavirus pandemic.
Shell set out the plan to bolster its balance sheet after becoming the first major oil company to update investors on the toll of tumbling oil prices on its business. It warned that the sudden oil market collapse could wipe up to $800m from its finances for the first quarter through a post-tax impairment charge.
The global oil price fell to 18-year lows this week as the economic contagion of the Covid-19 virus continues to weaken demand for energy and a price war between Saudi Arabia and Russia threatens to flood the market with more oil than the world can use.
Oil prices traded higher from lows of $23 a barrel following a call between Donald Trump and Vladimir Putin which raised hopes of a truce between Moscow and Riyadh before they each raise oil production to record highs next month.
The price of Brent crude rose to $23.55 a barrel overnight and had climbed to around $25 by Tuesday afternoon, from $65 a barrel in the first week of this year before the coronavirus began slashing the global energy demand forecasts for 2020.
“We have seen and expect significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products,” Shell told investors. “Furthermore, recent global developments and uncertainty in oil supply have caused further volatility in commodity markets.”
The company is already planning to slash $9bn from its spending plans to weather the collapse in prices amid the coronavirus pandemic. On average oil companies are cutting their spending plans by around a quarter to help weather the crisis.
Helima Croft, the head of global commodities at RBC Capital, said a US intervention in the Saudi-Russo oil price war “may prove to be an important turning point in the standoff between Moscow and Riyadh”.
“A rollback of some US energy sanctions could be the catalyst for getting Russia back to the OPEC+ bargaining table,” she said.
But analysts at Rystad Energy, a Norwegian consultancy, warned that Russia and Saudi Arabia’s production increase ambitions “are a drop in the ocean compared to the losses of global demand” due to the coronavirus crisis.
“Only a global production curtailment deal could help speed up the recovery in the market, once the calamities of the Covid-19 quarantine measures on oil demand become more clear,” the analysts said. “Unprecedented times call for unprecedented actions.”