Easwaran Kanason

Co - founder of NrgEdge
Last Updated: November 11, 2018
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Business Trends
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The headlines over the past few months has been the upward march of crude prices, propelled by uncertainty of supply, over the impact of American sanctions on Iranian crude and the resilient demand for oil. While the world may debate about the impact of high crude prices on the global economy, it’s been good news for oil companies. Collectively, ExxonMobil, Shell, Chevron, BP, Total and other Western oil companies reported Big Oil’s most profitable quarter ever – US$51.5 billion for the three-month period ending 30 September 2018.

All the supermajors cited stronger oil prices as the reason for blockbuster profits. Even ExxonMobil, which had lagged behind its competitors in 1H18, reported a 57% rise in net profit to US$6.2 billion, propelled by continued sterling discoveries in Guyana and payoffs from its investments in the Permian. It beat out Wall Street expectations for the first time in several quarters, allowing XOM to record one of the top ten most profitable quarters for any company on the New York Stock Exchange. Chevron’s numbers were nothing to sneeze at either – more than doubling y-o-y to US$4.05 billion. It, in fact, pumped its highest volume of oil and natural gas ever over a single quarter, at some 3 million barrels of oil equivalent.

If the American supermajors’ performance was impressive, their European counterparts were even better. Shell’s net profit for the quarter rose by 60% y-o-y to some US$12.1 billion, as the firm’s deep cost saving measures since 2015 allowed it to take full advantage of strong oil prices. It was a reward for long-term investors in the firm, as the firm pushes ahead with one of the largest share buy-back programmes ever; a measure that investors want other supermajors – particularly ExxonMobil – to follow.

BP reported a net profit of US$3.8 billion, more than double Q317, quipping that ‘everything was working well’ as it prepares to integrate BHP Billiton’s shale assets in the Permian into its own operations. No longer considered a +1, Total is now a full-fledged supermajor, with net profits jumping by 48% to US$4 billion, taking full advantage over a ‘favourable environment’ and its ‘very good operational efficiency’. Together, the five supermajors reported net profits of over US$30 billion. Stellar results in other firms – ConocoPhillips (US$1.8 billion), Eni (1.74 billion) – pushed the total net profits for major oil firms in the US and Europe to over US$50 billion.

If there was one weak point in the Q318 results, it was downstream results. Higher crude prices meant that the supermajors’ refineries had to pay higher prices for feedstock, and with pump prices failing to rise as quickly, downstream became a drag on results – with Chevron even declaring a loss for their refining arm in Q318. This should recalibrate in Q418 as retail prices catch up. But expectations should be tempered for Q4 – instead of US$100/b oil that was predicted, trends have so far reversed – so to expect another record-breaking quarter might be foolhardy.

Oil Supermajors Net Profits in Q3 - 2018

  • ExxonMobil: US$6.2 billion
  • Shell: US$12.1 billion
  • Chevron: US$4.05 billion
  • BP: US$3.8 billion
  • Total: US$4 billion

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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.

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