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Last Updated: January 25, 2018
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Market Watch

Headline crude prices for the week beginning 22 January 2017 – Brent: US$69/b; WTI: US$63/b

  • After a correction last week, oil prices have found renewed strength, on hints that OPEC may continue supply management into 2019
  • Saudi Arabia and Russia have jointly signalled that they may have to extend the production cuts in 2019 – as the rising tide of US shale production may derail prices later this year. However, this may be a sign of longer-term cooperation – as the two have been getting cosier.
  • Despite this, Russian Deputy Prime Minister Arkady Dvorkovich said a decision on the OPEC/NOPEC global oil cuts could be made in late spring, ahead of OPEC’s initial timeframe of June, during its next meeting.
  • Kuwait, however, stressed that there is no plan or intention among OPEC members to break from the production freeze agreement, as Iraq claimed that the global market is stabilising with crude inventories falling.
  • Strong global economic data, particularly from the US and Japan, is also supporting the rise in crude prices towards US$70/b.
  • US crude stockpiles are estimated to have fallen by 2.3 million barrels last week, but with refinery maintenance season ongoing in North America until March, this number could start to rise again.
  • After a sizable leap last week, the active US oil and gas rig count by Baker Hughes fell by a net 3 last week. Two gains in gas rigs offset a 5 site drop in oil rigs, with gains in the Permian cancelled out by losses elsewhere.
  • Crude price outlook: OPEC and Russia’s signs of willingness to act should keep prices strong this week. Brent will stay above US$70/b, while WTI should push towards US$66/b.


Headlines of the week

Upstream

  • Shell’s decision to go ahead with the Penguin FID has been hailed as a return to confidence after a period cautious investment in the North Sea. The FPSO redevelopment will be the largest FID since Culzean in 2015.
  • Tullow Oil has snapped up two new oil and gas blocks (CI-520 and CI-524) in the Ivory Coast, bringing its total in the country up to 9.
  • Nigeria’s parliament is moving ahead with passing the new Petroleum Industry Bill, aimed to increasing transparency and stimulating growth. 
  • Total purchased A.P Moeller-Maersk’s shares in three Kenyan blocks. Full production at the Tullow Oil blocks in Turkana is expected in 2021.
  • A consortium of BP and Kosmos Energy has picked up two offshore blocks in Sao Tome and Principe, right in the upstream hotbed of West Africa.
  • Vitol is investing some US$530 million into the OML 30 oilfield owned by Nigeria’s Shoreline in exchange for access to estimated output of 50 kb/d.

Downstream

  • India’s ONGC has secured a US$2.83 billion loan from three banks to fund its US$5.8 billion acquisition of state oil refiner HPCL.
  • Saudi Aramco, CB&I and Chevron Lummus have signed a joint agreement to move ahead with the ‘crude-to-chemical’ plan, integrating the technologies of all three companies as Saudi Arabia pushes downstream.
  • Philadelphia Energy Solutions, which owns the 350 kb/d Philadelphia refinery, is filing for bankruptcy, citing high compliance costs.
  • Nigeria’s NNPC will confirm the investors participating in the revamp of its three ailing refineries, in Port Harcourt, Warri and Kaduna.
  • Statoil has started work on an onshore oil terminal in northern Norway that will handle flows from the Johan Castberg offshore field in the Arctic.

Natural Gas/LNG

  • Iraq has inked a deal with US energy firm Orion, which will process 100-150 mmcf/d of natural gas extracted from the Nahr bin Omar oilfield, as part of a move to cut down the high incidence of gas flaring across Iraq.  
  • Trafigura and US LNG exporter Cheniere have signed a 15-year deal that will deliver 1 mtpa of LNG to Trafigure beginning 2019.
  • India’s GAIL has renegotiated the terms of a long-term LNG contract with Gazprom, the third such successful renegotiation by an Indian company.
  • ExxonMobil has announced a new find in Papua New Guinea, with the onshore P’nyang South-2 well showing hydrocarbon (gas) reservoirs.
  • South Korea’s SK E&S has offered to build a floating LNG import terminal in Sri Lanka for ‘free’, in an unusual loss-leading strategy.
  • A leak in the Sabah-Sarawak gas pipeline has not affected Petronas LNG shipments, with repairs ongoing. Gas flows to the Bintulu LNG complex from Sabah Oil and Gas Terminal have been temporarily halted.
  • No LNG cargoes left Chevron’s Wheatstone project in December 2017 due to scheduled downtime, as Chevron faces an emissions enquiry. Wheatstone Train 2 is on track for mid-2018, with domestic gas production also scheduled for this year.

Corporate

Halliburton and Schlumberger have both reported better-than-expected profits for Q417, a sign that the service industry health may be improving.

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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.

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