Shell poised to dethrone Exxon in oil titans' cash clash

European Stock Markets

Royal Dutch Shell (RDSa.L) could usurp its largest rival Exxon Mobil (XOM.N) as the energy sector’s biggest cash generator after higher oil and gas prices combined with an improved performance lifted its 2017 revenue. 

 The Anglo-Dutch company on Thursday reported a more than doubling of profit in 2017 to $16 billion, the highest since the start of the 2014 downturn as the effect of years of costs cuts and the integration of BG Group filtered through.

Shell’s shares were 1.1 percent lower at 0842 GMT, compared with a slightly positive open for the FTSE 100 index.

Cash flow from operations in 2017 rose to $35.65 billion from $20.62 billion a year earlier, putting Shell on course to beat Exxon, which is forecast to have generated $32.6 billion in 2017, according to estimates by Jefferies analysts. Exxon reports earnings on Friday.

The rise was driven by a sharp recovery in oil prices in the second half of 2017, as the benchmark Brent price reached a three-year high of $70 a barrel.

But it was also due to a sector-wide drive to reduce costs to adapt to a world of “lower for longer” oil prices, as Shell and others cut thousands of jobs and lowered spending.

As a result Shell can now generate more cash than it did with oil prices above $100 a barrel and in November it raised its cash flow outlook from $25 billion to $30 billion by 2020, assuming an oil price of $60 a barrel.

Free cash flow -- cash available to pay for dividends and share buybacks -- rose to $27.6 billion from a negative $10.3 billion in 2016.

Shell in the fourth quarter scrapped its scrip dividend, in a sign that it is confident of being able to maintain around $15 billion in annual dividend payments without resorting to scrip or borrowing after a three-year oil price downturn.

Shell’s oil and gas production in the fourth quarter rose from the previous quarter to 3.756 million barrels of oil equivalent per day (boed) from 3.657 million boed, but on a yearly basis, it fell 4 percent as a result of asset sales.

Production was expected to come down by 270,000 boed in 2018 as a result of divestments, including the sale of a North Sea portfolio to Chrysaor and its stake in Woodside Petroleum.

Shell announced the sale of its stake in the Bongkot gas field and adjoining acreage offshore Thailand to PTT Exploration & Production PCL for $750 million on Wednesday and is on track to hit a $30 billion asset sale target.

On a quarterly basis, Shell’s profit, based on a current cost of supplies (CCS) and excluding identified items, rose by 140 percent to $4.3 billion, slightly ahead of forecasts.

Shell said its gearing dropped to 24.8 percent from a peak of 29.2 percent in the third quarter of 2016 as it cut its debt to $74.65 billion. And while it took a $2 billion charge due to new U.S. tax rules, Shell expects a longer-term boost.

Pressured for profit, oil majors bet big on shale technology

Global Stock Markets

For the last decade, smaller oil companies have led the way in shale technology, slashing costs by as much as half with breakthroughs such as horizontal drilling and hydraulic fracking that turned the United States into the world’s fastest-growing energy exporter.

Now, oil majors that were slow to seize on shale are seeking further efficiencies by adapting technologies for highly automated offshore operations to shale and pursuing advances in digitalization that have reshaped industries from auto manufacturing to retail.

The technological push comes amid worries that U.S. shale gains are slowing as investors press for higher financial returns. Many investors want producers to restrain spending and focus on generating higher returns, not volume, prompting some to pull back on drilling.

Production at a majority of publicly traded shale producers rose just 1.3 percent over the first three quarters this year, according to Morgan Stanley

Chevron Corpis using drones equipped with thermal imaging to detect leaks in oil tanks and pipelines across its shale fields, avoiding traditional ground inspections and lengthy shutdowns.

Ryan Lance, chief executive of ConocoPhillips  - the largest U.S. independent oil and gas producer - sees ample opportunity to boost both profits and output. Conoco also oversees remote drilling operations in a similar way to Shell. 

Shell, in an initiative called “iShale,” has marshaled technology from a dozen oilfield suppliers, including devices from subsea specialist TechnipFMC Plc  that separate fracking sand from oil and well-control software from Emerson Electric Co , to bring more automation and data analysis to shale operations.

Oil firms currently spend about $5.9 million to drill a new shale well, according to consultancy Rystad Energy. Shell expects to chop that cost to less than $4 million apiece by the end of the decade.  

 Anadarko Petroleum Statoiland others are using DNA sequencing to pinpoint high potential areas, collecting DNA from microbes in oil to search for the same DNA in rock samples. 

ConocoPhillips next year will start using magnetic resonance imaging (MRI) to analyze Permian rock samples and find the best drilling locations, a technique the company first developed for its Alaskan offshore operations.

EOG Resources Inc last year began using a detailed analysis of the oil quality of its fields. The analysis, designed by Houston start-up Premier Oilfield Laboratories, helps to speed decisions on fracking locations and avoid less productive sites.

Shell to sell part of its stake in Woodside Petroleum for $1.7 billion

Royal Dutch Shell (RDSa.L) said on Monday it was selling part of its stake in Woodside Petroleum Ltd (WPL.AX) to equity investors for about $1.7 billion (1.30 billion pounds).

Shell said its unit, Shell Energy Holdings Australia Limited (SEHAL), had entered into an agreement with two investment banks for the sale of 71.6 million shares in Woodside for 31.10 Australian dollars (18.19 pounds) per share. 

The company said that represented 64 percent of its interest in Woodside and 8.5 percent of the issued capital in Woodside. 

Upon completion of the sale, SEHAL will continue to own a 4.8 percent interest in Woodside.

Shell has so far sold or agreed to sell over $26 billion as part of its three-year $30 billion asset sales programme launched following the acquisition of BG Group in 2015. 

Woodside’s $US2.68bn buy-back is based on a share price of $36.49, representing a 14 per cent discount to Woodside’s average price over past five days.

The sell-down is expected to be completed by 10am (AEST) tomorrow, at which time Woodside shares will resume trading.

he buy back is subject to shareholder approval, an independent expert’s report and consent under a number of Woodside’s facility agreements
.

Woodside’s board is recommending that shareholders vote in favour of the buy back, subject to the independent expert concluding it is fair and reasonable.

Shell chief executive Ben van Beurden said the sale was part of the company’s drive to improve capital efficiency and to focus its Australia growth in directly owned assets.

BP, Shell lead plan for blockchain-based energy trading platform

Oil Stock Markets

A consortium including energy companies BP and Royal Dutch Shell will develop a blockchain-based digital platform for energy commodities trading expected to start by end-2018, the group said on Monday. 

Other members of the consortium include Norwegian oil firm Statoil, trading houses Gunvor, Koch Supply & Trading, and Mercuria, and banks ABN Amro, ING and Societe Generale

Blockchain technology, which first emerged as the architecture underpinning cryptocurrency bitcoin, uses a shared database that updates itself in real-time and can process and settle transactions in minutes using computer algorithms, with no need for third-party verification.

Mercuria has been a vocal advocate of implementing blockchain technology to significantly cut costs in oil trading. 

Ideally, it would help to eliminate any confusion over ownership of a cargo and potentially help to make managing risk more exact if there are accurate timestamps to each part of the trade said Edward Bell, commodities analyst at Dubai-based lender Emirates NBD PJSC. 

Similar efforts for an energy trading platform have failed to take off, Bell said, but added this latest bid with backing from BP and Shell and the banks

The new venture is seeking regulatory approvals and would be run as an independent entity, the consortium said in a statement. 

The platform aims to reduce administrative operational risks and costs of physical energy trading, and improve the reliability and efficiency of back-end trading operations.

Shell proposes adding Russian oil to Brent benchmark

Royal Dutch Shell on Wednesday urged oil pricing agency S&P Global Platts to protect the dated Brent crude benchmark from declining North Sea supply by including other grades, such as Russian Urals, in its price-setting process.

The benchmark, based on light North Sea crude grades, is used to price about two-thirds of the world's oil but a decline in North Sea output has led to concerns that physical volumes could become too thin and prone to large price swings.

Platts announced it would add a fifth grade, Troll, to the benchmark slate from January 2018 but Shell says more must be added in the next two to three years and considers Russian medium sour Urals as a top candidate.

"A good benchmark need not only be representative of what the region produces ... If you had to pick one grade of crude, Urals is the one which northwest European refineries should be designed to run optimally," Mike Muller, vice president of crude trading and supply at Shell, told the Platts Crude Summit in London.

Muller also suggested the price of dated Brent be derived from the average price of a basket of crudes, rather than by using the lowest priced of the four BFOE crudes on any given day. This would simplify the price-setting process, he said.

Two years ago, Muller said European refineries were already free to buy Urals - a crude stream that dwarfs North Sea streams in volume - as a substitute to the North Sea Forties grades as they are similar in quality.

Shell’s North Sea production is set to drop by more than half to about 110,000 barrels per day after the sale of a large package of North Sea assets to private equity-backed Chrysaor last year. But Shell will market Chrysaor’s volumes for several more years.