Shell finally withdraws from Albania with 1.1 billion euros in losses

The Dutch company Shell has decided to withdraw from Block 4 exploration in the south of the country, while it has suspended all other oil extraction operations in Albania and is considering the final cessation of activity in our country.

In the audited statements for the financial year 2023, published late only at the beginning of this year, the company Shell Albania Block 4 BV- Albania Branch states that “during the first months of 2024 … the management of the Branch has assessed the situation of operations in Albania. Based on the decision taken by the management, there is no intention to continue its business activity for the foreseeable future. Management estimates that the liquidation of the Branch will begin during 2025,” the company’s financial statements state.

Shell Albania Block 4 BV is the company that manages exploration in Block 4 of the oil exploration in Albania, a Block that lies in the Southern and Southeastern area of ​​the country. The company obtained exploration rights in this area with the Decision of the Council of Ministers of June 2018.

The contract provided for three exploration periods, which were expected to last a total of seven years. Taking into account the disruptions caused by the global spread of the Covid-19 pandemic and the volatility of the energy market, in 2022 Shell decided to suspend exploration in Block 4 for a period of no more than two years.

But, last year, company executives reached the decision that the company would choose not to enter the Second Exploration Period and permanently cease operations in Block 4.

By the end of 2023, Shell Albania Block 4 BV was reporting accumulated losses of around 25 million euros on its balance sheet, mainly expenses incurred for oil exploration.

Shell Upstream, on the verge of exit with 1.1 billion euros in losses

The largest company, Shell Upstream Albania BV - Albania Branch, which manages the main oil exploration operations in Albania and mainly the wells in the Shpirag area, is in a similar situation.

In the 2023 financial statements, management has decided to no longer consider the branch in Albania as a going concern.

The company has also decided to write down oil exploration wells for a total value of more than 500 million euros. The write-down of an asset in simple terms means recognizing it as a loss. In this case, the write-down of the wells indicates that Shell Upstream Albania has no expectation that it will be able to extract and market oil from these wells to derive economic value from them.

The depreciation of these assets has resulted in a pre-tax loss of a record 54.8 billion lek for 2023. In total, Shell Upstream Albania reported on its balance sheet about 108.6 billion lek of accumulated losses, which at today's exchange rate translates to approximately 1.1 billion euros.

“In early 2024, the tests at Shpirag-5 concluded with a result that advised against continuing the evaluation. Following the decision of Shell Upstream Albania management to complete the test of the Shpirag-5 well and not to immediately start the next activity, the company is currently evaluating various options for the future of the Block 2-3 assets. The impairment of assets in the company’s accounts was caused by the aforementioned decision, as to date the options to ensure continuity have not matured to prove the marketability and/or recovery of the asset’s value… In this regard, management no longer considers the Branch as a going concern and has therefore prepared the statements not on a going concern basis,” it is stated in the notes to the financial statements of Shell Upstream Albania.

In fact, at the end of the financial statements, the company states that "management has a reasonable expectation that financing for the fulfillment of the provision for dismantling and restoration as well as for trade and other obligations will be provided in the future by Shell Treasury in London, based on the internal policy of the Shell Group."

This hints at the expectation for the final cessation of Shell's operations in Albania. / Monitor