Property, Plant and Equipment | 8 – PROPERTY, PLANT AND EQUIPMENT 2020 $ million Exploration and production Exploration Production Manufacturing, Other Total Cost At January 1 18,596 286,666 104,817 29,081 439,160 Additions 1,728 9,659 6,287 3,460 21,134 Sales, retirements and other movements (5,928) 600 (5,510) (1,109) (11,947) Currency translation differences 92 3,632 2,282 970 6,976 At December 31 14,488 300,557 107,876 32,402 455,323 Depreciation, depletion and amortisation, including impairments At January 1 4,010 136,300 48,872 11,629 200,811 Charge for the year [A] 3,336 34,209 11,680 1,693 50,918 Sales, retirements and other movements (2,148) (5,075) (4,129) (1,091) (12,443) Currency translation differences 64 2,805 1,819 502 5,190 At December 31 5,262 168,239 58,242 12,733 244,476 Carrying amount at December 31 9,226 132,318 49,634 19,669 210,847 [A] Includes $26,676 million relating to impairment losses (see table 'Impairments' below). 2019 $ million Exploration and production Exploration Production Manufacturing, Other Total Cost At January 1 21,181 285,252 97,694 26,268 430,395 Additions 2,659 11,374 10,945 3,145 28,123 Sales, retirements and other movements (5,442) (11,253) (3,683) (456) (20,834) Currency translation differences 198 1,293 (139) 124 1,476 At December 31 18,596 286,666 104,817 29,081 439,160 Depreciation, depletion and amortisation, including impairments At January 1 3,287 131,692 46,218 10,465 191,662 Charge for the year 1,096 19,346 5,742 1,573 27,757 Sales, retirements and other movements (440) (15,567) (2,981) (437) (19,425) Currency translation differences 67 829 (107) 28 817 At December 31 4,010 136,300 48,872 11,629 200,811 Carrying amount at December 31 14,586 150,366 55,945 17,452 238,349 Sales, retirements and other movements in 2020 includes to sales of the Appalachia shale gas position and the Martinez refinery, both in the USA. The carrying amount of property, plant and equipment at December 31, 2020, included $31,611 million (2019: $27,779 million) of assets under construction. This amount excludes exploration and evaluation assets. The carrying amount at December 31, 2020, included $1,159 million of assets classified as held for sale (2019: $1,401 million). The carrying amount of exploration and production assets at December 31, 2020, included rights and concessions in respect of proved and unproved properties of $11,485 million (2019: $14,355 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, 2020, for which an alternative reserves base was applied in the calculation of the depreciation charge (see Note 2), was $1,707 million (2019: $173 million). If no alternative reserves base had been used, the pre-tax depreciation charge for the year ended December 31, 2020, would have been $1,012 million higher (2019:$77 million, 2018: $1,003 million). Contractual commitments for the purchase and lease of property, plant and equipment at December 31, 2020, amounted to $5,699 million (2019: $4,599 million (as revised)). Right-of-use assets Within property, plant and equipment the following amounts relate to leases: $ million 2020 Exploration and production Exploration Production Manufacturing, Other Total Cost At January 1 5 15,213 13,574 5,759 34,551 Additions — 502 1,570 1,580 3,652 Sales, retirements and other movements — (1,370) (675) (75) (2,120) 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 — 5,761 2,936 1,164 9,861 Charge for the year — 1,898 2,675 760 5,333 Sales, retirements and other movements — (712) (627) (158) (1,497) Currency translation differences — 50 29 27 106 At December 31 — 6,997 5,013 1,793 13,803 Carrying amount at December 31 5 7,443 9,513 5,591 22,552 $ million 2019 Exploration and production Exploration Production Manufacturing, Other Total Cost At January 1 — 16,379 10,718 5,017 32,114 Additions 5 664 3,124 917 4,710 Sales, retirements and other movements — (1,867) (268) (157) (2,292) Currency translation differences — 37 — (18) 19 At December 31 5 15,213 13,574 5,759 34,551 Depreciation, depletion and amortisation, including impairments At January 1 — 5,209 1,110 589 6,908 Charge for the year — 1,632 1,855 703 4,190 Sales, retirements and other movements — (1,091) (30) (128) (1,249) Currency translation differences — 11 1 — 12 At December 31 — 5,761 2,936 1,164 9,861 Carrying amount at December 31 5 9,452 10,638 4,595 24,690 Impairments $ million 2020 2019 2018 Impairment losses [A] Exploration and production 20,155 2,983 1,066 Manufacturing, supply and distribution 6,490 654 441 Other 31 2 8 Total 26,676 3,639 1,515 Impairment reversals [A] Exploration and production — — 1,265 Manufacturing, supply and distribution — 190 — Total — 190 1,265 [A] See Note 4. 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 refinery 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. Impairment losses in 2018 were mainly in Upstream, and principally related to the disposal of Shell’s interests in Norway and Ireland and related to assets in the Gulf of Mexico. Impairment reversals in 2018 were mainly related to assets in North America. 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). These cash flows were adjusted for the risks specific to the assets, and therefore these risks were not included in the determination of the discount rate applied. The nominal pre-tax rate applied in 2020 was 6% (2019: 6%; 2018: 6%). 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 2020 were as follows: Commodity price assumptions [A] 2021 2022 2023 2024 Brent crude oil ($/b) 40 50 60 63 Henry Hub natural gas ($/MMBtu) 2.50 2.50 2.75 3.03 [A] Money of the day. For periods after 2024, the real-terms long-term price assumptions applied were $60 per barrel (/b) (2019: $60/b)for Brent crude oil and $3.00 per million British thermal units (/MMBtu) (2019: $3.00 / MMBtu) for Henry Hub natural gas, both at real term 2020. 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 refineries. 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. Some 53% of the Group’s combined “Property, plant and equipment", "Investments in Joint Ventures and Associates" and "Intangible assets” were tested for impairment in 2020. Of the assets tested, some 56% were subject to either partial or full impairments. At December 31, 2020, the recoverable amounts principally determined through value in use of assets subject to impairment were $17.2 billion for Integrated Gas, $39.1 billion for Upstream and $1.8 billion for Oil Products respectively. 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% of the commodity price assumptions would ceteris paribus result in some $6.0-$8.0 billion impairment or of some $6.0-$9.0 billion impairment reversal respectively in Integrated Gas and Upstream. A change of -10% or +10% in long-term refining margins would ceteris paribus result in some $1.5-$2.5 billion impairment or some $1.7-$2.7 billion impairment reversal respectively in Oil Products. Capitalised exploration drilling costs $ million 2020 2019 2018 At January 1 5,668 6,629 6,981 Additions pending determination of proved reserves 1,016 2,036 2,588 Amounts charged to expense (815) (1,218) (449) Reclassifications to productive wells on determination of proved reserves (1,385) (1,655) (2,461) Other movements [A] (830) (124) (30) At December 31 3,654 5,668 6,629 [A] Includes $750 million impairment of capitalised exploration drilling costs. Projects Wells Number $ million Number $ million Between 1 and 5 years 33 1,666 80 1,275 Between 6 and 10 years 12 975 47 1,309 Between 11 and 15 years 7 213 21 217 Between 16 and 20 years — — 3 53 Total 52 2,854 151 2,854 Exploration drilling costs capitalised for periods greater than one year at December 31, 2020, analysed according to the most recent year of activity, are presented in the table above. These comprise $82 million relating to two projects where drilling activities were under way or firmly planned for the future, and $2,772 million relating to 50 projects awaiting development concepts. |