Easwaran Kanason

Co - founder of NrgEdge
Last Updated: February 26, 2019
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Business Trends

A few weeks ago, energy supermajor BP made a US$5 million investment in Belmont Technology, a Houston-based artificial intelligence (AI) start-up. The amount is small, but the potential is big. Phrases like AI, machine learning, cognitive computing and neural networks may still be lesser known in the energy industry, but they are about to get more important. A lot more important.

In the investment in Belmont Technology, BP is hoping to apply its AI cloud-based geoscience platform for more accurate lifecycle projections in exploration and reservoir modelling. Skills and analysis that used to be crunched by brute force or manually onsite are now taken to the cloud the power of new server technology and major advances in computing. By feeding historical data on geology, geophysics, reservoir and assets, the AI can throw a bombardment of computing power at the data to map it in new ways, identifying connections and trends that might miss the human eye of an analyst. Reacting to real-time data, the dynamic nature of AI technology like this allows for a 90% time reduction in data collection, interpretation and simulation.

It isn’t the only AI venture that BP is in. The British firm already has a tie-up with start-up Beyond Limits, using software used to model deep space exploration missions to refine its economic models for reservoir development, crude oil refining and fuel distributions. And it certainly isn’t the only supermajor in the area. Shell has its own AI and machine learning department in-house, tackling issues as varied as equipment failure to electric vehicle charging optimisation. Total is following in those footsteps, partnering with Tata Consultancy to build a digital innovation centre to explore AI, automation and agile methodology technology. Chevron and ExxonMobil have looked outward and building partnerships. Chevron has a 7-year deal with Microsoft to use Azure to accelerate its analytics and Internet of Things capabilities, while ExxonMobil has also partnered with Microsoft to boost its cloud technology in the Permian – aiming to improve capital efficiency and support output growth of 50,000 b/d by 2025.

The trend isn’t just limited to the supermajors. All across the entire value chain of the oil industry, players big and small are embracing digitisation. Last year, industrial specialist Rockwell Automation and services firm Schlumberger formed a joint venture called Sensia, a firm focused on ‘selling equipment and services to advance digital technology and automation in the oilfield’. In a nutshell, Sensia is promising a future where drilling rigs can run on automated schedules, oilfield equipment can communicate between themselves and machinery can assess when maintenance is required. It is making drilling for oil smarter, cheaper and more efficient with less labour. All across the world, data science-focused start-ups like VROC AI and Element AI are popping up – leveraging neural networks and artificial intelligence technology to offer novel and innovative predictive solutions to the oil industry, from more accurate reservoir management to remapping entire geological formations.

Google, Amazon and Microsoft are the leaders in large-scale machine learning, backed by their vast cloud servers – which is already powering operations at supermajors and state oil firms like Equinor and Petronas. But innovation doesn’t just lie in the very big, which is why BP’s investment into Belmont Technology is important. Belmont Technology today could be the Amazon Web Services Oil & Gas division of tomorrow. By 2035, consultancy McKinsey estimates that data analytics and robotics could save the energy industry some US$290-390 billion in annual productivity. For an industry so sensitive to costs, that’s a tantalising dream and the reason to invest now.

Infographic: Recent Big Data moves by Big Oil

  • October 2017, Chevron and Microsoft announce a comprehensive partnership on cloud computing
  • February 2019, ExxonMobil and MIT partner on AI-powered, self-learning submersible robots for ocean exploration
  • April 2018, Total and Google partner on Google Cloud AI solution for subsurface data analysis
  • January 2019, BP invests US$5 million in AI start-up Belmont Technology
  • January 2019, ExxonMobil and Microsoft partner on cloud-based analytics in the Permian Basin
  • February 2019, Shell purchases Greenlots, a US-based electronic vehicle cloud-based charge and energy management software provider

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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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