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Last Updated: January 11, 2018
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Market Watch

Headline crude prices for the week beginning 8 January 2017 – Brent: US$68/b; WTI: US$62/b

  • Oil prices continue their upward trend, hitting 3-year highs.
  • Ongoing unrest in Iran continues to worry the market, although the Iranian government claims that its oil output has not been affected.
  • Supply disruptions in Libya have been nipped, and Libyan production is estimated to have increased to 1 mmb/d after dropping to 950,000 b/d.
  • Data from the US EIA showed American oil production fell by 290,000 barrels for 9.5 mmb/d as the post-year end lull continues.
  • The EIA maintains that US crude production will rise over 2018, hitting 11 mmb/d by 2019. The target for Q118 is 10.4 mmb/d.
  • US crude inventories also fell, by also 5 million barrels, to 419.5 million barrels, a surprise drop not anticipated by the market.
  • The US$62/b WTI mark is seen as a post-shale tipping point, which could encourage new shale drilling. A consortium of shale drillers announced they expect major expansion if WTI hits and sustains at US$66/b.
  • Active US rig sites fell by a net five to 924 last week, with the losses mainly coming from onshore drilling sites. 
  • However, Asian refining margins are estimated to have dropped, with the Singapore average margin dropping below US$6/b in December, the lowest level in five years, which could affect Asian crude intake.
  • Crude price outlook: Some correction is expected in the oil markets, compounded by longer term expectations that US crude production will increase. Brent will have a floor of US$67/b this week, while WTI should trade at US$62-63/b.


Headlines of the week

Upstream

  • Big moves in the USA as the Trump administration proposes to open up almost all US offshore waters to oil and gas drilling, while also planning to relax offshore regulations introduced after the 2010 Macondo disaster.
  • ExxonMobil continues to strike gold in Guyana. Test results from the Ranger-1 exploration well have been positive, the sixth oil discovery for ExxonMobil in the country since 2015 with 3.2 boe barrels in place so far.
  • Iraq’s parliament has voted to ban Kurdish engineering firm Kar Group from operating in Kirkuk oilfields, a move that could have KRG and Kurdish firms excluded from the northern oil fields.
  • The UK’s Tullow Oil has picked up six new licenses offshore Peru, with prospects in the Tumbes Basin, near the prolific Talara Basin, high.
  • A power trip on an FPSO has shut down the Ophir oil field in Malaysia, with repairs expected to last at least a week.
  • Lebanon has awarded its first oil blocks – Blocks 4 and 9 – to a consortium of Total, Eni and JSC Novatek – as it aims to capitalise on the upstream boom in the eastern Mediterranean.

Downstream

  • The Finnish government has given up its majority stake in refiner Neste. Donations to a charitable foundation reduced the state’s stake in Neste from 50.1% to 49.7%, and further reductions to 33.4% are planned.
  • Taiwan’s FPC plans to run its 540 kb/d Mailiao refinery at full capacity over January and February before scheduled maintenance in March, it may contribute to a growing glut of naphtha in Asia.
  • In another twist to the Curacao refinery drama, the island’s government has scrapped a deal with China’s Guangdong Zhenrong Energy to operate the Isla refinery, which may push Curacao back to working with PDVSA.
  • Borealis is planning a 740,000 ton propane dehydrogenation (PDH) plant at its Kallo site, Belgium, which would be one of the largest in the world.
  • Shell has begun transferring its Hong Kong and Macau LPG marketing business to DCC LPG, but will still operate its LPG plant in Hong Kong.

Natural Gas/LNG

  • Russian natural gas production rose to 24.4 tcf last year, the highest level ever, with sales boosted by domestic and European demand.
  • Norway’s gas production also hit a record high in 2017, with exports growing by 7% to 4.1 tcf, meeting roughly a quarter of European demand.
  • Gas supply has been restored at the Escravos-Lagos Pipeline System in Nigeria after being affected for a week by a fire.
  • Gas production at Repsol’s Sagari field in Cusco, Peru has begun, contributing to a 25% output gain to 5.6 mcm/d for Repsol’s Block 57.
  • Eni has gained Shell’s 32.5% stake in Australia’s Evans Shoal offshore gas field, aiming to boost feedstock to support expansion at Darwin LNG.

Corporate

Ahead of its planned IPO this year, Saudi Aramco has been converted from a single shareholder to joint-stock company as of January 1, a necessary requirement for any public listing in Saudi Arabia.

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December, 01 2021
Royal Dutch Shell Poised To Become Just Shell

On 10 December 2021, if all goes to plan Royal Dutch Shell will become just Shell. The energy supermajor will move its headquarters from The Hague in The Netherlands to London, UK. At least three-quarters of the company’s shareholders must vote in favour of the change at the upcoming general meeting, which has been sold by Shell as a means of simplifying its corporate structure and better return value to shareholders, as well as be ‘better positioned to seize opportunities and play a leading role in the energy transition’. In doing so, it will no longer meet Dutch conditions for ‘royal’ designation, dropping a moniker that has defined the company through decades of evolution since 1907.

But why this and why now?

There is a complex web of reasons why, some internal and some external but the ultimate reason boils down to improving growth sustainability. Royal Dutch Shell was born through the merger of Shell Transport and Trading Company (based in the UK) and Royal Dutch (based in The Netherlands) in 1907, with both companies engaging in exploration activities ranging from seashells to crude oil. Unified across international borders, Royal Dutch Shell emerged as Europe’s answer to John D Rockefeller’s Standard Oil empire, as the race to exploit oil (and later natural gas) reserves spilled out over the world. Along the way, Royal Dutch Shell chalked up a number of achievements including establishing the iconic Brent field in the North Sea to striking the first commercial oil in Nigeria. Unlike Standard Oil which was dissolved into 34 smaller companies in 1911, Royal Dutch Shell remained intact, operating as two entities until 2005, when they were finally combined in a dual-nationality structure: incorporated in the UK, but residing in the Netherlands. This managed to satisfy the national claims both countries make on the supermajor, second only to ExxonMobil in revenue and profits but proved to be costly to maintain. In 2020, fellow Anglo-Dutch conglomerate Unilever also ditched its dual structure, opting to be based fully out of the City of London. In that sense, Shell is following the direction of the wind, as forces in its (soon to be former) home country turn sour.

There is a specific grievance that Royal Dutch Shell has with the Dutch government, the 15% dividend tax collected for Dutch-domiciled companies. It is the reason why Unilever abandoned Rotterdam and is now the reason why Shell is abandoning The Hague. And this point is particularly existentialist for Shell, since its share prices has been battered in recent years following the industry downturn since 2015, the global pandemic and being in the crosshairs of climate change activists as an emblem of why the world’s average temperatures are going haywire. The latter has already caused the largest Dutch state pension fund ABP to stop investing in fossil fuels, thereby divesting itself of Royal Dutch Shell. This was largely a symbolic move, but as religious figures will know, symbols themselves carry much power. To combat this, Shell has done two things. First, it has positioned itself to be at the forefront of energy transition, announcing ambitious emissions reductions plans in line with its European counterparts to become carbon neutral by 2050. Second, it is looking to bump up its dividend payouts after slashing them through the depths of the Covid-19 pandemic and accelerating share buybacks to remain the bluest of blue-chip stocks. But then, earlier this year, a Dutch court ruled that Shell’s emissions targets were ‘not ambitious enough’, ordering a stricter aim within a tighter timeframe. And the 15% dividend tax remains – even though Prime Minister Mark Rutte’s coalition government has been attempting to scrap it, with (it is presumed) some lobbying from Royal Dutch Shell and Unilever.

As simplistic it is to think that Shell is leaving for London believes the citizens of the Netherlands has turned its back on the company, the ultimate reason was the dividend tax. Reportedly, CEO Ben van Buerden called up Mark Rutte on Sunday informing him of the planned move. Rutte’s reaction, it is said was of dismay. And he embarked on a last-ditch effort to persuade Royal Dutch Shell to change its mind, by immediately lobbying his government’s coalition partners to back an abolition of the dividend tax. The reaction was perhaps not what he expected, with left-wing and green parties calling Shell’s threat ‘blackmail’. With democracy drawing a line, Shell decided to walk; or at least present an exit plan endorsed by its Board to be voted by shareholders. Many in the Netherlands see Shell’s exit and the loss of the moniker Royal Dutch – as a blow to national pride, especially since the country has been basking in the glow of expanded reputation as a result of post-Brexit migration of financial activities to Amsterdam from London. The UK, on the other hand, sees Shell’s decision and Unilever’s – as an endorsement of the country’s post-Brexit potential.

The move, if passed and in its initial stages, will be mainly structural, transferring the tax residence of Shell to London. Just ten top executives including van Buerden and CFO Jessica Uhl will be making the move to London. Three major arms – Projects and Technology, Global Upstream and Integrated Gas and Renewable Energies – will remain in The Hague. As will Shell’s massive physical reach on Dutch soil: the huge integrated refinery in Pernis, the biofuels hub in Rotterdam, the country’s first offshore wind farm and the mammoth Porthos carbon capture project that will funnel emissions from Rotterdam to be stored in empty North Sea gas fields. And Shell’s troubles with activists will still continue. British climate change activists are as, if not more aggressive as their Dutch counterpart, this being the country where Extinction Rebellion was born. Perhaps more of a threat is activist investor Third Point, which recently acquired a chunk of Shell shares and has been advocating splitting the company into two – a legacy business for fossil fuels and a futures-focused business for renewables.

So Shell’s business remains, even though its address has changed. In the grand scheme of things, never mind the small matter of Dutch national pride – Royal Dutch Shell’s roadmap to remain an investment icon and a major driver of energy transition will continue in its current form. This is a quibble about money or rather, tax – that will have little to no impact on Shell’s operations or on its ambitions. Royal Dutch Shell is poised to become just Shell. Different name and a different house, but the same contents. Unless, of course, Queen Elizabeth II decides to provide royal assent, in which case, Shell might one day become Royal British Shell.

End of Article 

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