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Last Updated: April 10, 2019
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Market Watch

Headline crude prices for the week beginning 1 March 2019 – Brent: US$68/b; WTI: US$60/b

  • Crude oil futures have extended their gains, fuelled by continued adherence to the OPEC+ supply deal and signs that the Chinese economy is stabilising
  • There was a collective sigh of relief, as President Donald Trump promised an ‘epic’ trade deal with China, indicating that progress had been made in trade talks; China’s manufacturing index also rose at its fastest pace since 2012, easing concerns over a global economic slowdown
  • Within OPEC+, Russia deepened its output cuts in March, joining Saudi Arabia and its allies in making big production cuts; Energy Minister Alexander Novak signalled that he was willing to discuss extension of the supply deal after suggesting that they should be allowed to lapse this September
  • Despite OPEC+’s unwavering stance, the US continues to pressure the cartel into lifting crude quotas through President Donald Trump’s Twitter account
  • It was revealed that Saudi Arabia had quietly raised the taxation rate on Saudi Aramco by switching oil benchmarks from the Kingdom’s crude to the more expensive international benchmark Brent in 2017, seen as a means to increase the government’s offtake of national crude revenue
  • Looking ahead, the possibility of a no-deal Brexit by April 12 is looming, and is weighing down on global financial markets, as well as regional and global energy firms
  • American crude production looks to be growing at a slower pace than expected, and there are now reports that some Asian buyers are rejecting US crude shale oil due to impurities like oxygenates present in significant volumes; the contamination makes processing difficult and at least two South Korean refiners have recently rejected shipments of Eagle Ford crude
  • The active US drilling count continues to drop for a sixth consecutive week, with the Baker Hughes index showing that that 8 oil rigs and 2 gas rigged were scrapped for a net loss of 10, bringing the total rig count own to 1006
  • It is likely that crude oil’s bullish run will continue, lifted by a better economic outlook and stable supply situation, although a potentially chaotic Brexit could throw a spanner in the works. Brent should be trading at US$68-70/b and WTI at US$60-62/b 

Headlines of the week

Upstream

  • Abu Dhabi’s ADNOC has awarded exploration rights for the onshore Block 1 to a consortium of two Indian state oil firms – IOC and BPCL – who will have a 35-year lease on the major asset
  • The Ivory Coast will finalising licensing of six oil blocks involving Total and Eni by June 2019 in a bid to raise output from its current level of 70,000 b/d
  • Total’s Brulpadda discovery in South Africa’s deep waters could prove to be more complicated than initially expected, with the billion-barrel reserve asset surrounded by the Agulhas current, one of fastest ocean currents in the world
  • The BHP Group is reportedly considering purchasing JV Bluewater, backed by the Blackstone Group, for US$1.5-2 billion, which would move BHP into deep water Gulf of Mexico exploration after it exited US shale last year
  • The Trump administration’s plans to open up oil and gas exploration in the Arctic and Atlantic has been blocked by a federal judge, complicating plans to auction off drilling rights in Arctic waters later this year
  • Tullow, Total and Eco Atlantic have begun drilling of their second well in Guyana at the Joe prospect, aiming to replicate ExxonMobil’s major success
  • But Guyana’s plans to expand its oil sector is now facing a regulatory standstill, as a no-confidence vote against President David Granger places the energy industry in the middle of a political deadlock
  • Norway’s Equinor has signalled a return to US Gulf exploration, with plans to drill four wells in the Walker Ridge area
  • ConocoPhillips is looking to sell a package of its UK North Sea assets to Chrysaor Holdings, after a sale to Ineos collapsed earlier, to turn its attention to shale exploration in the USA

Midstream & Downstream

  • China’s Hengli Petrochemical Co has reported successful initial operations at its 400 kb/d Dalian refinery, where test-running had begun in December 2018
  • Argentina’s state oil firm YPF will be investing US$2 billion to upgrade its Mendoza and La Plata refineries by adding desulfurisation units to meet increasing fuel and marine fuel standards
  • Saudi Aramco has officially taken control of Saudi Arabian chemicals giant SABIC, purchasing a majority stake from the Kingdom’s sovereign wealth fund for some US$69.1 billion

Natural Gas/LNG

  • China’s Guanghui Energy has signed a 10-year supply deal with Total for 700,000 tons of LNG per year sourced from Total’s global portfolio
  • Shell is aggressively pursuing plans to become the world’s largest power company, offering one of the cheapest power tariffs in the UK through its subsidiary First Utility through a gas/LNG-based structure
  • Eni seems to be having a streak of gas luck, with its Kekra-1 discovery offshore Pakistan reportedly holding multi-trillion cubic feet reserves of natural gas
  • Nigeria LNG is aiming to take FID on the Train 7 of the NLNG project on Bonny Island by October 2019
  • Anadarko and its partners in Mozambique’s Area 1 are ‘very close’ to taking FID on the two-train, 12.88 mtpa LNG project
  • Novatek has secured the first two sales agreements for its Arctic LNG 2 project in Russia, inking deals with Vitol and Repsol for 15-year and 1 million tpa of LNG per year from the facility in the Gydan peninsula

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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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