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Note 9 - Property, plant and equipment

2021

 

 

 

 

 

$ million

 

Exploration and production

Manufacturing, supply and distribution

 

 

 

Exploration and evaluation

Production

Other

Total

Cost

 

 

 

 

 

At January 1 [A]

14,484

298,882

107,876

32,402

453,644

Additions

1,216

8,942

7,917

3,644

21,719

Sales, retirements and other movements [A]

(3,014)

(20,005)

(9,607)

(455)

(33,081)

Currency translation differences

(7)

(1,916)

(2,004)

(1,586)

(5,513)

At December 31

12,679

285,903

104,182

34,005

436,769

Depreciation, depletion and amortisation, including impairments

 

 

 

 

 

At January 1 [A]

5,258

167,711

58,242

12,733

243,944

Charge for the year

1,311

15,800

7,112

1,770

25,993

Sales, retirements and other movements [A]

(999)

(14,590)

(8,624)

(240)

(24,453)

Currency translation differences

10

(1,391)

(1,599)

(667)

(3,647)

At December 31

5,580

167,530

55,131

13,596

241,837

Carrying amount at December 31

7,099

118,373

49,051

20,409

194,932

[A]

As from 2021, assets classified as held for sale are presented separately and upon reclassification included in ‘Sales, retirements and other movements’. Prior period comparatives have been revised to conform with current year presentation. (See Note 30)

2020

 

 

 

 

 

$ million

 

Exploration and production

Manufacturing, supply and distribution

 

 

 

Exploration and evaluation

Production

Other

Total

Cost

 

 

 

 

 

At January 1 [A]

18,399

286,666

101,379

29,081

435,525

Additions

1,728

9,659

6,287

3,460

21,134

Sales, retirements and other movements [A]

(5,735)

(1,075)

(2,072)

(1,109)

(9,991)

Currency translation differences

92

3,632

2,282

970

6,976

At December 31

14,484

298,882

107,876

32,402

453,644

Depreciation, depletion and amortisation, including impairments

 

 

 

 

 

At January 1 [A]

4,010

136,300

46,621

11,629

198,560

Charge for the year [B]

3,336

34,209

11,680

1,693

50,918

Sales, retirements and other movements [A]

(2,152)

(5,603)

(1,878)

(1,091)

(10,724)

Currency translation differences

64

2,805

1,819

502

5,190

At December 31

5,258

167,711

58,242

12,733

243,944

Carrying amount at December 31

9,226

131,171

49,634

19,669

209,700

[A]

As from 2021, assets classified as held for sale are presented separately and upon reclassification included in “Sales, retirements and other movements”. Prior period comparatives have been revised to conform with current year presentation. (See Note 30)

[B]

Includes $26,676 million relating to impairment losses (see table “Impairments” below).

The carrying amount of property, plant and equipment at December 31, 2021, included $37,006 million (2020: $31,611 million) of assets under construction. This amount excludes exploration and evaluation assets.

The carrying amount of exploration and production assets at December 31, 2021, included rights and concessions in respect of proved and unproved properties of $8,849 million (2020: $11,485 million). Exploration and evaluation assets principally comprise rights and concessions in respect of unproved properties and capitalised exploration drilling costs.

The carrying amount of assets at December 31, 2021, for which an alternative reserves base was applied in the calculation of the depreciation charge (see Note 2), was $1,634 million (2020: $1,707 million). If no alternative reserves base had been used, the pre-tax depreciation charge for the year ended December 31, 2021, would have been $1,184 million higher (2020: $1,012 million, 2019: $77 million).

Contractual commitments for the purchase and lease of property, plant and equipment at December 31, 2021, amounted to $5,984 million (2020: $5,699 million).

Right-of-use assets

Within property, plant and equipment the following amounts relate to leases:

2021

 

 

 

 

 

$ million

 

Exploration and production

Manufacturing, supply and distribution

 

 

 

Exploration and evaluation

Production

Other

Total

Cost

 

 

 

 

 

At January 1

5

14,440

14,526

7,384

36,355

Additions

311

2,149

1,420

3,880

Sales, retirements and other movements

(365)

(868)

(259)

(1,492)

Currency translation differences

(64)

(59)

(514)

(637)

At December 31

5

14,322

15,748

8,031

38,106

Depreciation, depletion and amortisation, including impairments

 

 

 

 

 

At January 1

6,997

5,013

1,793

13,803

Charge for the year

1,373

2,060

783

4,216

Sales, retirements and other movements

(400)

(1,093)

(157)

(1,650)

Currency translation differences

(35)

(34)

(146)

(215)

At December 31

7,935

5,946

2,273

16,154

Carrying amount at December 31

5

6,387

9,802

5,758

21,952

2020

 

 

 

 

 

$ million

 

Exploration and production

Manufacturing, supply and distribution

 

 

 

Exploration and evaluation

Production

Other

Total

Cost

 

 

 

 

 

At January 1 [A]

5

15,213

13,478

5,759

34,455

Additions

502

1,570

1,580

3,652

Sales, retirements and other movements [A]

(1,370)

(579)

(75)

(2,024)

Currency translation differences

95

57

120

272

At December 31

5

14,440

14,526

7,384

36,355

Depreciation, depletion and amortisation, including impairments

 

 

 

 

 

At January 1 [A]

5,761

2,907

1,164

9,832

Charge for the year

1,898

2,675

760

5,333

Sales, retirements and other movements [A]

(712)

(598)

(158)

(1,468)

Currency translation differences

50

29

27

106

At December 31 [A]

6,997

5,013

1,793

13,803

Carrying amount at December 31 [A]

5

7,443

9,513

5,591

22,552

[A]

As from 2021, assets classified as held for sale are presented separately and upon reclassification included in “Sales, retirements and other movements”. Prior period comparatives have been revised to conform with current year presentation. (See Note 30)

Impairments

 

 

 

$ million

 

2021

2020

2019

Impairment losses

 

 

 

Exploration and production

1,533

20,155

2,983

Manufacturing, supply and distribution

2,340

6,490

654

Other

21

31

2

Total [A]

3,894

26,676

3,639

Impairment reversals

 

 

 

Exploration and production

213

Manufacturing, supply and distribution

190

Other

1

Total [A]

214

190

[A]

See Note 5.

Impairment losses in 2021 were predominantly triggered by reclassifications of asset held for sale, portfolio developments or end of field life. They are mainly related to two refineries in the USA within Oil Products impaired on classification as held for sale ($1,357 million), exploration and evaluation assets both within Integrated Gas ($600 million) and Upstream ($373 million) and one site in the USA within Chemicals impaired on classification as held for sale ($180 million). Only one asset (in Upstream) was impaired because of an asset-specific trigger for which the recoverable amount was determined through value in use and an impairment of $97 million was recognised.

Impairment losses in 2020 were mainly triggered by Shell’s revision of the mid- and long-term commodity price and refining margin outlook reflecting the expected effects of the macroeconomic environment and the COVID-19 pandemic as well as energy market demand and supply fundamentals. The impairment losses for exploration and production assets related primarily to Integrated Gas ($11,539 million), including the Queensland Curtis LNG and Prelude floating LNG operations, and Upstream ($8,629 million), including assets in the Gulf of Mexico, unconventional assets in North America, offshore assets in Brazil and Europe and a project in Nigeria (OPL 245). The impairment losses for manufacturing, supply and distribution related primarily to Oil Products ($6,493 million), including assets in Europe and the shutdown of the Convent oil products manufacturing facility in the USA.

Impairment losses in 2019 were mainly triggered by the revision to Shell’s long-term oil and gas price outlook and change to future capital expenditure plans. The impairment losses related primarily to Upstream shale and deep-water properties in North and South America, in Integrated Gas to properties in Australia and in Oil Products to the refining portfolio.

For impairment testing purposes, the respective carrying amounts of property, plant and equipment and intangible assets were compared with their value in use. Cash flow projections used in the determination of value in use were made using management’s forecasts of commodity prices, market supply and demand, potential costs associated with operational GHG emissions, product margins including forecast refining margins and expected production volumes (see Note 2).

In 2021, Shell changed its estimation technique to determine the value in use for impairment testing purposes. A key element is the update of the discount rate, which is now based on a nominal post-tax weighted average cost of capital (WACC) of 5% for Power activities and a nominal post-tax WACC of 6.5% for all other businesses. Prior to 2021 the rate used by Shell was the same for all activities and was based on a pre-tax discount rate reflecting the marginal cost of debt, current market assessments of the time value of money and residual risk (2021: 6%; 2020: 6%; 2019: 6%). The change in discount rate to a nominal post-tax WACC has been reflected in a commensurate manner in the risk adjustments to post-tax cash flow projections. The impact of the change in impairment valuation technique is not material to the impairment assessments performed in 2021 and it is not expected to result in a materially different outcome in future periods. The pre-tax discount rate used for goodwill testing ranged between 7-11%.

Oil and gas price assumptions applied for impairment testing are reviewed and, where necessary, adjusted on a periodic basis. Reviews include comparison with available market data and forecasts that reflect developments in demand such as global economic growth, technology efficiency, policy measures and, in supply, consideration of investment and resource potential, cost of development of new supply, and behaviour of major resource holders. The near-term commodity price assumptions applied in impairment testing in 2021 were as follows:

Commodity price assumptions [A]

 

2022

2023

2024

2025

Brent crude oil ($/b)

60

60

60

63

Henry Hub natural gas ($/MMBtu)

2.75

2.75

2.75

3.00

[A]

Money of the day.

For periods after 2025, the real-term price assumptions applied were $60 per barrel (/b) (2020: $60/b) for Brent crude oil and $3.00 per million British thermal units (/MMBtu) (2020: $3.00/MMBtu) for Henry Hub natural gas.

Until 2019, management’s estimate of longer-term refining margins in Oil Products was based on the reversion to mean methodology, unless a fundamental shift in markets had been identified, over the life of the oil products manufacturing facilities. Under this approach, it was assumed that refining margins will revert to historical averages over time. As from 2020, a different price methodology has been applied, based on management’s understanding and interpretation of demand and supply fundamentals in the near term and taking into account various other factors such as industry rationalisation and energy transition in the long term. This resulted in a downward revision of average long-term refining margins by around 30% from previous assumptions applied.

The main sensitivities in relation to impairment are the commodity price assumptions in Integrated Gas and Upstream and refining margins in Oil Products. A change of -10% or +10% in the commodity price assumptions over the entire cash flow projection period would ceteris paribus result in some $12-15 billion impairment or some $6-9 billion impairment reversal, respectively, in Integrated Gas and Upstream. A change of -10% or +10% in long-term refining margins over the entire cash flow projection period would ceteris paribus result in some $1-3 billion impairment or up to $2 billion impairment reversal, respectively, in Oil Products.

Capitalised exploration drilling costs

 

 

 

$ million

 

2021

2020

2019

At January 1

3,654

5,668

6,629

Additions pending determination of proved reserves

1,024

1,016

2,036

Amounts charged to expense

(639)

(815)

(1,218)

Reclassifications to productive wells on determination of proved reserves

(577)

(1,385)

(1,655)

Other movements

(447) [A]

(830)

(124)

At December 31

3,015

3,654

5,668

[A]

Includes $290 million disposal and $116 million impairment of capitalised exploration drilling costs.

 

Projects

Wells

 

Number

$ million

Number

$ million

Between 1 and 5 years

17

1,189

33

821

Between 6 and 10 years

14

961

38

1,110

Between 11 and 15 years

5

184

21

366

Between 16 and 20 years

1

28

4

65

Total

37

2,362

96

2,362

Exploration drilling costs capitalised for periods greater than one year at December 31, 2021, analysed according to the most recent year of activity, are presented in the table above. These comprise $727 million relating to eight projects where drilling activities were under way or firmly planned for the future, and $1,635 million relating to 29 projects awaiting development concepts.

GHG
greenhouse gas
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LNG
liquefied natural gas
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MMBtu
million British thermal units
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OPL
oil prospecting licence
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