Oil giants posturing

Since the collapse of the OPEC+ meetings and in the wake of seismic demand destruction from COVID-19, both Saudi Arabia and Russia have been in a battle of who will blink first with commitments to increase production in the hopes of forcing the other back to the table to recommence production cut discussions. However as of today, there has been no face saving solution for either to MBS or Putin to back down and even Trump's calls to OPEC/Russia to (ironically) help lift oil prices have been ignored.

Despite the strong stance and hard talk by MBS and Putin, neither Saudi or Russia have actually significantly ramped up oil production to date. State-controlled oil companies in the two countries have reportedly hesitated before ramping up production in a show of careful navigation to avoid sending the entire oil & gas industry into oblivion in the potential absence of a winner-takes-all outcome which is becoming more and more apparent.

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Shell acts to reinforce business resilience and financial strength

Shell acts to reinforce business resilience and financial strength

23 March 2020

Press release as follows:

As the COVID-19 virus spreads across the world - seriously impacting people’s health, our way of life and global markets - Shell is putting the safety and health of our people and customers first, along with the safe operations of all our businesses.

At the same time, we are taking decisive action to reinforce the financial strength and resilience of our business so that we are well-positioned for the eventual economic recovery.

“As well as protecting our staff and customers in this difficult time, we are also taking immediate steps to ensure the financial strength and resilience of our business,” said Ben van Beurden, Chief Executive Officer of Royal Dutch Shell. “The combination of steeply falling oil demand and rapidly increasing supply may be unique, but Shell has weathered market volatility many times in the past.”

“In these very tough conditions, I am very proud of our staff and contractors across the world for maintaining their focus on safe and reliable operations while also ensuring their own health and welfare and that of their families, communities and our customers.”

In order to deliver sustainable cash flow generation, Shell is actively managing all our operational and financial levers – from focusing on maintaining safe and reliable operations each day to reducing capital spend and operating expenses.

Today, we are announcing that we have embarked on a series of operational and financial initiatives that are expected to result in:

• reduction of underlying operating costs by $3-4 billion per annum over the next 12 months compared to 2019 levels; 
• reduction of cash capital expenditure to $20 billion or below for 2020 from a planned level of around $25 billion; and 
• material reductions in working capital. 

Together, these initiatives are expected to contribute $8 - 9 billion of free cash flow on a pre-tax basis. Shell is still committed to its divestment programme of more than $10 billion of assets in 2019-20 but timing depends on market conditions.

The Board of Royal Dutch Shell has decided not to continue with the next tranche of the share buyback programme following the completion of the current share buyback tranche.

We will continue to review the dynamically evolving business environment and are prepared to take further strategic decisions and consider changes to the overall financial framework as necessary.

In the current environment, Shell’s financial resilience is fundamental to continued investment in our strategic priorities. Shell seeks to maintain strong financial credit metrics and ensure it has a robust balance sheet to manage volatility. Shell’s liquidity remains strong, with around $20 billion in cash and cash equivalents, $10 billion of undrawn credit lines under our revolving credit facility and access to our extensive commercial paper programmes.

Read about Shell’s global response to COVID-19 at https://www.shell.com/covid19.html

Shell will publish its next quarterly update note on 31 March 2020 and release its Q1 2020 results on 30 April 2020.

Notes to editor

• Divestments of around $5 billion of assets were completed in 2019 
• Current share buyback tranche refers to the $1 billion share buybacks announced on 30 January 2020 
• Shell is rated AA- with negative outlook by S&P and Aa2 with stable outlook by Moody’s 

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COVID-19 North Sea Recovery by end 2020

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Which hydrocarbon sources are the highest Greenhouse Gas emitters?

The main culprit we are familiar with as a Greenhouse Gas ("GHG") is Carbon Dioxide CO2. However Methane CH4 is a worse polluter with 25 times the potency as a GHG than CO2.

Below is a comparison of GHG emissions intensity by hydrocarbon source. This includes CO2 and CH4 emissions. Unsurprisingly, energy intensity processes needed to extract hydrocarbons are high on the emissions list.

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Total Makes a New Gas and Condensates Discovery in the North Sea

Total, Operator, and its partners have made an encouraging discovery with the Isabella 30/12d-11 well on the license P1820, located in the Central North Sea offshore UK, about 40 kms south of the Elgin-Franklin field and 170 kms east of Aberdeen.

The well was drilled in a water depth of about 80 meters and encountered 64 meters net pay of lean gas and condensate and high-quality light oil, in Upper Jurassic and Triassic sandstone reservoirs. The analysis of the data and results are ongoing to assess the discovered resources and to determine the appraisal program required to confirm commerciality.

'The initial results at Isabella are encouraging. This demonstrates that our exploration strategy in the North Sea to explore for value adding prospects nearby to our infrastructure is working.' commented Kevin McLachlan, Senior Vice President Exploration at Total.

The P1820 license is operated by Total with a 30% working interest, alongside Neptune Energy (50%), Ithaca Energy (10%) and the wholly owned subsidiary of Edison, Euroil Exploration (10%).

Source: https://www.total.com/en/media/news/press-releases/uk-total-makes-new-gas-and-condensates-discovery-north-sea

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Forcing regime change in Venezuela

US attempts to force regime change in Venezuela continues despite the huge humanitarian crisis it is causing.

The sanctions on the Maduro government have been absolutely crippling with oil output down from 2.5mmbbl/d down to sub-1mmbbl/d and falling - due to inability to invest to maintain production, striking PDVSA staff with pay uncertainty, inexperienced generals taking over and running over PDVSA as well and shrinking importer base for its crude. On this note, the situation is worsened with the US' latest sanctions of Russian Rosneft which was a key buyer of Venezuelab crude on 18th February. In the meantime, Rosneft has continued purchases from a PDVSA subsidiary under US granted waivers which expire in April 2020.

In 2019 the IMF forecasts the country's GDP fell by 35% and inflation increased by 200,000%. Clutching at straws, President Maduro has launched a new Bolivar currency and cryptocurrency called Petro although many doubt this will solve anything apart from being smoke and mirrors.

The longer the crisis continues, the stronger the support for the topple of Maduro, paving the way for the internationally-backed pro-democratic Juan Guaido to come to power.

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Lest we forget

With coverage of Iranian tensions diminishing and more recently overshadowed by COVID-19, we review the likely direction of travel in light of recent events.

On 23rd February 2020, the country held its 11th parliamentary elections with Conservatives securing all 30 parliamentary seats in Tehran and winning control overt most branches of the State. This will continue the Conservatives run in parliament but does set the stage for a more extreme Presedential candidate from the Iranian Revolutionary Guards to win in 2021.

The country has been drastically crippled by the reinstatement of US sanctions with oil production down to c.400mbbl/d from pre-sanction highs of >2mmbbl/d. The public resentment grows stronger both against the US but also its own government after the shooting down of the passenger jet at the beginning of this year. We could well see the path to an escalation in conflict with the US together with further refinement of its nuclear stockpile, although this will only be a real threat and take maximum effect in a tight oil market. With current weak trajectory of oil prices during COVID-19, the US reaction could very well be so what...?

At the same time, COVID-19 has claimed over 200 lives in Iran and question is whether we could see it seek assistance in the international arena if things worsen.

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