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Malabu Deal: Shell to write down OPL 245 license as production tanked 7%

The world’s largest oil and gas trader, Shell says it would write down its investment in the controversial Malabu OPL 245 offshore field in Nigeria, just as it announced that its upstream segment made a loss of $6.7 billion as production declined by 7percent from a year earlier to 2.415 million barrels of oil equivalent per day.

A write down is necessary if the fair market value of an asset is less than the carrying value currently on the books. The amount to be written down is the difference between the book value of the asset and the amount of cash that the business can obtain by disposing of it in the most optimal manner.

“The upstream loss included a post-tax impairment charge of $4.7 billion mainly related to unconventional shale assets in North America, assets offshore in Brazil and Europe, and the OPL 245 block in Nigeria which is at the heart of a bribery court case in Italy,” Shell said.

The OPL license has been at the heart of a protracted litigation in Italy after prosecutors alleged corruption. Shell bought the oilfield alongside an Italian company, Eni, in 2011 after paying $1.3 billion.

The payment was to a company called Malabu, which was owned by Nigeria’s former Oil Minister Dan Etete. However, Italian prosecutors claim that most of the payments were kickbacks to Nigerian government officials. Prosecutors have, therefore, called for an 8-year prison sentence for former Eni CEO, Paolo Scaroni. Both companies have been fined $1.04 million and prosecutors seek the confiscation of $1.092 billion from the defendants of the case.

The Anglo-Dutch company, avoided its first quarterly loss in recent history, buoyed by booming trading business, it however announced nearly $17 billion in impairment charges reflecting a bleak outlook for oil and gas prices.

Shell’s liquefied natural gas (LNG) sales declined by 7% in the quarter. The Integrated Gas division wrote down $8.2 billion, mainly related to the Queensland Curtis LNG and Prelude floating LNG operations in Australia.

The upstream loss included a post-tax impairment charge of $4.7 billion mainly related to unconventional shale assets in North America, assets offshore in Brazil and Europe, and the OPL 245 block in Nigeria which is at the heart of a bribery court case in Italy.

Shell’s liquefied natural gas (LNG) sales declined by 7% in the quarter. The Integrated Gas division wrote down $8.2 billion, mainly related to the Queensland Curtis LNG and Prelude floating LNG operations in Australia.

Shell’s net debt rose to $77.8 billion and its debt-to-equity ratio, or gearing, was up by 2.8% to 32.7% following the impairments.

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