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Last Updated: November 29, 2019
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Headline crude prices for the week beginning 25 November 2019 – Brent: US$63/b; WTI: US$58/b

  • Oil prices have been edging upwards recently, but largely staying rangebound as data failed to overcome sentiment and the spectre of the US-China trade war
  • Trade negotiations between the USA and China got a bit more complicated with the US Congress passing a bill supported rights and autonomy in Hong Kong; signed into law by President Donald Trump, the move could jeopardise the probability of a comprehensive trade deal emerging anytime soon
  • Ahead of OPEC’s bi-annual meeting in Vienna next week, the stage has been set for a contentious round; the current OPEC+ supply pact will expire in March 2020, and a decision to either end, extend or expand the deal must be made at the meeting that begins on December 5
  • Eyes will be on Russia, which has failed to adhere to its share of the output cuts as Energy Minister Alexander Novak said that the country was ‘trying to reach the planned level’ but faced challenges in weather and geography
  • Against the backdrop, the US EIA reports that output from the seven major onshore shale formations is expected to rise by 49,000 b/d to a record 9.1 mmb/d, with the Permian hitting 4.73 mmb/d, even as the active rig count drops
  • But in California, the state has halted permits for high-pressure steam flooding following leaks at Chevron’s Cymric field, hampering the industry
  • In the UK, politicking for the upcoming general elections – aimed at providing clarity on Brexit – has led the Labour party to propose a windfall tax on all oil companies and a ‘permanent ban’ on fracking, which could hasten the decline in the UK oil and gas industry
  • The chronic declines in the US active rig count continue, with the total falling again as 3 oil rigs stopped work, bringing the active count down to 803 – or 276 fewer sites year-on-year
  • Nothing but rangebound trading is expected for crude prices, given the number of factors that still up in the air – the outcome of the OPEC December meeting and the continued ping-pong situation in the US-China trade war; Brent and WTI will, therefore, stay trading at US$60-63/b and US$56-59/b respectively


Headlines of the week

Upstream

  • Senegal’s national oil company – PETROSEN – will be launching the country’s first offshore licensing round in January 2020, with 10 exploration blocks in the prolific MSGBC basin on offer to be awarded in July 2020
  • ConocoPhillips has announced a plan to pull back from an over-dependence on US shale, focusing on morphing into a low-growth, high-cash generating company instead of an aggressive shale exploiter to preserve shareholder value
  • Shell will begin drilling its first well in Mexico – the Chibu-1EXP deepwater well within the offshore Campeche basin - by end-2020, as supermajor interest in Mexican upstream begins to translate into concrete E&P activity
  • Strikes at Canadian National Railways has halted shipments of crude-by-rail from Alberta, as the rail company prioritised movement of food goods
  • The heady optimism of Guyanese oil finds has been tempered recently, with ExxonMobil and Hess announcing that oil at the Hammerhead well is heavier than expected, a week after Tullow said the same of its crudes

Midstream/Downstream

  • US refiner HollyFrontier will be building a new biodiesel plant in New Mexico as it attempts to reduce costs by adapting to new US mandates on biofuel that require refiners to blend increasing volumes of bio-feedstocks into gasoil
  • Sinopec is aiming to launch its new 200,000 b/d refinery in Zhanjiang – fed by Kuwaiti crude – in 2Q2020, the third greenfield refinery that will enter operation in China in space of 2 years
  • India has officially launched its largest privatisation drive in a decade, offering the government’s entire stake in BPCL – among other big-ticket items – to private investors, with interest coming from Saudi Aramco and ADNOC
  • As Indonesia makes a push to introduce a new B30 biodiesel mandate nationwide over 2020, the move could display up to 165,000 b/d in volumes away from gasoil towards palm oil feedstock

Natural Gas/LNG

  • Qatar is planning to boost its LNG production capacity to 126 million tpa by 2027 – up by 64% from a current 77 million tons – as it focuses on expanding development in the massive North Field, with work on two new LNG trains with a combined capacity of 16 million tpa having recently started
  • BP has struck new gas in Trinidad & Tobago, with the Ginger exploration well yielding gas flows, extending BP’s success streak in the island nation that includes the recent Savannah and Macademia discoveries
  • The US FERC has approved four new LNG export projects – Exelon Corp’s Annova LNG, NextDecade Corp’s Rio Grande LNG and Texas LNG projects, as well Cheniere’s expansion at Corpus Christi – which would roughly double current US LNG export capacity just as the global market is hitting a glut
  • Novatek is pushing the Russian government to support and finance an LNG transhipment terminal at the Kamchatka Peninsula with capacity for 20 million million tpa to support Novatek’s expanded production in the area
  • After suffering from a severe shortage, Australia’s east coast is now facing the opposite problem, with the current oversupply in global LNG creating a low gas price environment, but supply deficits could kick in again after 2023
  • SKK Migas, Indonesia’s upstream regulator, has set a target to the upstream industry to increase natural gas production by a third to 1 mmboe/d in 2030 from a current 750,000 boe/d, targeting potential from the Masela Block

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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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