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Last Updated: December 27, 2019
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Headline crude prices for the week beginning 23 December 2019 – Brent: US$66/b; WTI: US$60/b

  • Oil prices remain rangebound, as supply-side developments kept a lid on optimism that a phase 1 US-China trade deal could support oil demand
  • Kuwait and Saudi Arabia reported that they were near an agreement on their shared neutral zone, where crude production has been halted for at least four years due to territorial disputes; if output from this region returns, estimates suggest that it could bring as much as 500,000 b/d back to the market
  • This will be of use to Saudi Aramco, whose shares have slide after an initial week of euphoria, as investors locked in profits, moving to lock in additional supplies and secure critical downstream refining centres worldwide
  • Going into 2020, the US is looking to strengthen enforcement of its sanctions on Iran, targeting global shippers, Chinese state enterprises and exporters of metal to further ‘tighten the screws’ on Iranian crude exports
  • An attack, and subsequent crew kidnapping, of an oil tanker in West Africa’s Gulf of Guinea didn’t move the crude market much, but does highlight the growing incidence of piracy in the region
  • Expectations that US shale output will slow down in 2020 and beyond have been rebuffed by the new US Energy Secretary Dan Brouilette, who expects the slowdown to be temporary
  • The active US rig count rose ahead of Christmas, adding 18 oil rigs (but losing 4 gas rigs) for a net increase of 14, bringing the total count back above the 800 mark at 813 sites, or 267 fewer year-on-year
  • In the quiet period between Christmas and New Year, crude oil prices should remain rangebound, shifting within the following ranges: US$65-67/b for Brent and US$61-63/b for WTI


Headlines of the week

Upstream

  • Total is looking to acquire interests in two offshore licenses in Angola – Block 20/11 and Block 21/09, shared with Sonangol and BP – in line with its ambition to build a new crude production hub in the south central African Kwanza Basin
  • Devon Energy has sold its assets in the US Barnett shale area – including 320,000 acres and 4,200 producing wells – to BKV Oil & Gas Capital Partners for US$770 million, the latter’s first acquisition in Barnett
  • Eni is returning to Albanian upstream, signing a production sharing contract with the government to explore the onshore Dumre block
  • Canadian-based Touchstone Exploration reports that it has made a ‘significant’ onshore oil discovery in Trinidad and Tobago, with the Cascadura-1ST1 well in the Ortoire block yield flows ‘beating expectations’
  • Fiji has awarded two onshore exploration acreage on its main island of Viti Levu to private player Akura, which could yield the Pacific island’s first crude

Midstream/Downstream

  • Chinese refineries processed some 13.65 mmb/d of crude oil in November, up 10.1% y-o-y to the second-highest level on record, bolstered by 3 new mega refineries and increase teapot output that is also causing a fuels supply glut
  • Reliance and BP will be moving ahead with their fuel retail partnership, which aims to increase Reliance’s Indian network from 1,400 stations and 30 aviation fuel sites to 5,500 stations and 45 aviation fuel sites by 2025
  • Sinopec has completed the central CDU unit of its Al-Zour refinery project in Kuwait, with an eventual total of 615 kb/d capacity processing Kuwaiti crude that will also be the largest clean fuel refinery in the Middle East
  • Petrobras’ attempts to sell four of its Brazilian refineries has attracted a number of international bids, with Sinopec and US-based EIG Energy Partners delivering bids for the 150 kb/d REGAP site in Minas state
  • Saudi Aramco has acquired 17% of Korean oil refinery Hyundai Oilbank for US$1.2 billion, a critical node in Aramco’s global downstream portfolio
  • Mexico has deferred a rule requiring Pemex to produce and sell ultra-low-sulfur diesel domestically for five years to 2024, with Pemex citing severe infrastructure and technical limitations to supply the clean fuel
  • Chevron will be returning to the downstream retail market in Australia, purchasing the fuel retail arm of Puma Energy for some US$288 million, which includes 270 retail stations, 20 depots and 3 bulk sea terminals

Natural Gas/LNG

  • After speeding ahead rapidly, an Israeli court has placed the brakes on the Leviathan natural gas project, issuing a temporary injunction on all operations on grounds of pollution endangering public health
  • PetroChina has offered a spot LNG cargo on the cheap – submitted for a Pakistan tender – a sign that China may have overstocked ahead of a warmer winter, and indicative of the current global LNG supply glut
  • The US has conceded defeat on its bid to prevent the Russia-Germany Nord Stream 2 pipeline from being completed, saying it has ‘little leverage’; US sanctions have caused a delay in the project, but German officials report that the natural gas pipeline should be completed in 2H 2020
  • BP reported success in its three-well drilling campaign in Mauritania and Senegal, with the GTA-1, Yakaar-2 and Orca-1 wells yielding high-quality reservoirs of natural gas

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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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