Amid the furore of the Saudi state’s involvement in the assassination of political dissident Jamal Khashoggi, the Kingdom has threatened and then walked back on the possibility of using its oil wealth as a weapon (again). While the global implications and repercussions of the scandal are still unfolding, this has not deterred the Kingdom’s crown jewel Saudi Arabia from forging ahead with an ambitious slate of projects and investments meant to diversify its business and prepare itself an eventual IPO.
We were supposed to be at the cusp of the IPO already. Planned for Q119, a number of factors have led it to be placed on the backburner. The first is Aramco’s planned acquisition of another Saudi powerhouse, petrochemicals producer SABIC. The second is the complications of the plan, which was to dual list in both Riyadh and an international bourse; the London Stock Exchange went as far as to amend its rules to allow the listing of national oil companies, and New York was reportedly also lobbying hard for the IPO. This leads to the third – with the Khashoggi affair still dominating headlines, it would be politically unsavoury to list anytime soon. The project team overseeing the IPO was disbanded in August, suggesting that the IPO was cancelled, but Crown Prince Mohammad bin Salman – or MBS – has promised that it will eventually occur. But perhaps now only after people’s memories have faded.
Meanwhile, Aramco is forging ahead. After creating a network of major downstream investments linking its key markets – the expansion of Port Arthur in the US, the Maharashtra refinery in India, the RAPID refinery in Malaysia and key refining partnerships in China – the firm announced that it had signed 15 Memoranda of Understanding (MoU) valued at over US$34 billion this month. Covering 15 partner firms across 8 countries, the new projects span the entire gamut of the energy industry – spinning out from the recent Davos in the Desert international investment forum in Riyadh . In the Kingdom itself, it is partnering with Total on a major petrochemical expansion in Jubail, as well as potentially establishing a retail service station network. An MoU with Hyundai Heavy Industries on investments in the King Salman International Maritime Complex for Industries and Services at Ras Al Khair was also announced, as well as one with Sumitomo for the upgrade of the PetroRabigh refinery and one with China’s Norinco for general refining and chemicals investment.
A slew of MoUs with upstream service firms was also announced, with Baker Hughes GE, Schlumberger, Halliburton, Oilfield Supply Center and NOV (USA) – useful, given Aramco’s directive to expand upstream domestically and internationally, especially with Kuwait and Saudi Arabia making motions towards settling the management of oil fields in the neutral zone between the two countries. The other partnerships were more specialised, linked to engineering steel, drilling chemicals, thermoplastic pipes and gasification power.
The wide scale of the projects suggest that Aramco sees no reason to decelerate its diversification and global investment drive. Transforming the company into a strong diversified firm away from a crude focus is necessary, not least because it ensures continued outlets for its crude. But also because it will justify the sky-high valuation estimates for the IPO, if it ever happens. But even if it doesn’t, Aramco’s ambitions are undeterred. Their path is forward, and it is ambitious. Political scandals nonewithstanding.
Saudi Aramco’s 15 announced MoU
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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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