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Last Updated: February 7, 2020
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Headline crude prices for the week beginning 3 February 2020 – Brent: US$54/b; WTI: US$51/b

  • The spread of the Wuhan coronavirus continues to drag global crude prices down, with global crude benchmarks at one-year lows and WTI briefly closing below US$50/b earlier this week
  • Lockdowns are continuing in the Hubei province and industrial activity across China has been curtailed, paralyzing economic activity; estimates suggest that oil demand in China has dropped by 20% - or 3 million b/d – since the full extent of the pandemic was revealed
  • Globally, oil cargoes are sitting around unsold as Chinese buying of crude, from West Africa to Latin America, has ground to a halt with Chinese refineries scale back production as the virus hits Chinese gasoline, gasoil and jet fuel demand
  • The scale of the decline has prompted OPEC to act, as it places the current supply pact at risk; OPEC may move its meeting for March 5/6 – where it was scheduled to discuss the future of its output quotas – to mid-February, in order to discuss responses to the crisis
  • Saudi Arabia is the main force behind calling for an earlier meeting for OPEC+, and even Russia has signalled that it is open to an earlier emergency meeting: signs that the group might be preparing to take more defensive measures
  • On the supply side, the Libya crisis continues as the standoff between the government and Khalifa Haftar rages on, which has virtually halted all crude exports, forcing tankers to leave Libyan ports with empty tanks
  • In Iraq, the 70,000 b/d Al Ahdab oil field has restarted after output was halted for a week by local security guard protests that blocked access to the site
  • The US active rig count fell for a second straight week, dropping 1 oil rig and 3 gas rigs for a net decline of 4 to 790 working sites in total
  • Even though the World Health Organisation has expressed confidence that China has control the outbreak, the material impact on oil demand is apparent, which will keep the lid on oil prices at US$53-54/b for Brent and US$50-52/b for WTI


Headlines of the week

Upstream

  • Pemex is claiming a majority of the giant shallow-water Zama oil field in the Gulf of Mexico, rejecting the 60% stake that Talos Energy – which made the private discovery in 2015– claims it owns in the Block 7 field
  • Equinor and Shell have taken joint ownership of 49% in the Bandurria Sur block in Argentina’s onshore Vaca Muerta shale oil play in the Neuquen province, purchasing it off Schlumberger for some US$350 million; both firms are also looking to purchase an additional 11% stake from operator YPF
  • Karoon Energy has started drilling at the Marina-1 exploration well in Block Z-38 in Peru’s offshore Tumbes basin, with potentially 256 million barrels in place
  • The US FERC has backed PennEast’s controversial US$1 billion shale gas pipeline, but the case of eminent domain may still go to the Supreme Court
  • ExxonMobil is looking to move on to starting appraisals at 2 new exploration blocks in Guyana and Suriname, hoping to repeat its Stabroek success
  • Senegal has launched its first ever offshore licensing round, offering 12 blocks in the offshore MSGBC basin, home to some recent high-profile discoveries
  • Cairn Oil & Gas is kicking off exploration in its flagship Rajasthan onshore oil and gas acreage in northwest India, with a planned drilling campaign of 23 wells
  • BP has produced first oil from its Alligin field in the West of Shetlands region in the UK, with initial output at a better-than-expected 15,000 b/d

Midstream/Downstream

  • Keen to avoid the Russian Druzbha pipeline contaminated crude fiasco from last year, Kazakhstan has made moves to contain the spread of up to 150,000 tonnes of crude tainted by organic chlorides, by reducing pipeline exports to China and altering shipment schedules to domestic refineries
  • Indonesia’s Pertamina has ended its joint venture with Eni to develop B100 palm oil-based biodiesel after Eni required sustainable certification for the feed
  • Following a row with Russia, Belarus has turned to Norway to run its Naftan refinery as Russian supplies have dried up since early January

Natural Gas/LNG

  • Eni has signed a long-term LNG supply deal with Nigeria LNG on Bonney Island, which will see it take 1.5 million tonnes per year from Trains 1, 2 and 3 that it has a 10.4% stake in, supplementing the 1.1 mtpa deal done in December
  • Abu Dhabi’s attempt to sell up to 49% of ADNOC’s gas pipeline business has attracted interest from BlackRock, KKR & Co and Global Infrastructure Partners, valuing the business at as much as US$15 billion
  • Eni has made a new gas and condensate discovery in the UAE, with the Mahani-1 well in Sharjah’s Area B concession containing up to 50 mscf/d of lean gas
  • US player Edge LNG has been tapped to capture previously unreachable gas from stranded wells in the Tioga Country within the Marcellus shale basin
  • Hess has reported first gas flows from the Zetung well at its North Malay Basin Phase 2 development, part of the Integrated Gas Development Project
  • Reliance has ceased output from the D1-D3 deepwater gas field in India, a flagship Indian gas field that once produced as much as 61 mmscf/d of gas
  • Equinor is set to withdraw from the Thrace basin in Turkey, leaving the shale play and a planned deep gas appraisal programmed to its partner Valeura Energy

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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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