Shell to Sell Stake in Australian Gas Field
“All too often, Shell’s answer to an issue or problem is that the market is being too short term; that Shell takes the long term view, and that in the long term, the company’s approach will be proved right,” Lucas Herrmann, an analyst at Deutsche Bank in London, wrote in a note to clients on Monday. “Sadly, we would argue that the weight of evidence is, if anything, against the company.’’: Mr. Rats estimates that Shell will have to sell $14 billion worth of assets over the next two years to keep its commitments on reining in capital spending. He forecasts that it will sell oil fields in the North Sea, where it owns a smorgasbord of stakes in oil and natural gas fields; in Nigeria, where Shell’s production has been cut by unrest; and in North America, where the company has been losing money.
By STANLEY REED: JAN. 20, 2014
LONDON — Royal Dutch Shell said on Monday that it would sell its minority interest in an Australian liquefied natural gas project to the Kuwait Foreign Petroleum Exploration Company for about $1.1 billion.
The sale is likely to be one of many in the oil industry this year, as companies try to raise cash for other projects or to finance share buybacks and higher dividends.
Even though global oil prices are relatively high, with Brent crude trading at about $106 a barrel, profit at many oil companies has been disappointing and the stock performance of some companies, including Shell, has been lackluster. Shares of Shell were slightly lower on Monday afternoon in London.
“All too often, Shell’s answer to an issue or problem is that the market is being too short term; that Shell takes the long term view, and that in the long term, the company’s approach will be proved right,” Lucas Herrmann, an analyst at Deutsche Bank in London, wrote in a note to clients on Monday. “Sadly, we would argue that the weight of evidence is, if anything, against the company.’’
At the same time, large oil companies have accumulated huge collections of oil fields and other assets over the years, through their own exploration and development activities and through acquisitions of smaller companies. Selling properties that they no longer consider vital is a way of trying to appease investors.
The sales also help companies conserve capital. “We are refocusing our investment to where we can add the most value with Shell’s capital and technology,” Shell’s chief executive, Ben van Beurden, said in a statement on Monday. “We are making hard choices in our worldwide portfolio.”
The company’s stake in the Wheatstone project, in the Carnarvon Basin off Western Australia, is typical of the kind of asset that oil companies may want to sell. Shell does not control the project, which is operated by Chevron. Wheatstone is still under construction, and labor and other costs have become expensive for the oil industry in Australia. The Kuwaitis were already partners in Wheatstone.
Mr. van Beurden, who took over as the head of Shell from Peter Voser less than three weeks ago, seems determined to shake things up. He surprised investors on Friday by warning that Shell’s earnings for the fourth quarter of 2013 would be 48 percent lower than a year earlier.
Shell’s recent performance is a good illustration of the trends in the industry that have disappointed investors. In recent years, capital investment in the industry has soared, more than doubling from 2005 to 2012, but it has not produced solid returns. Rising costs have trimmed profit margins, while oil companies have plowed much of their earnings back into projects that are becoming more expensive.
At Shell, capital investment rose to an estimated $45 billion last year from $27 billion in 2007, while returns on capital employed, an important measure of profit in the industry, declined to 9 percent last year from about 20 percent as late as 2008, according to estimates by Martijn Rats, an analyst at Morgan Stanley in London.
“Shell’s profit warning fits in a longer-term trend of pressure on returns and deteriorating free cash flow,” Mr. Rats wrote in a research note on Monday.
Selling assets is one way of trying to soothe investors. The sales raise money that companies can spend on projects or to finance increased dividends or share buybacks, and they also reduce the need for capital spending. The chief financial officer at Shell, Simon Henry, said last year that the company would pick up its pace of asset sales, a trend that Mr. van Beurden may accelerate further.
Mr. Rats estimates that Shell will have to sell $14 billion worth of assets over the next two years to keep its commitments on reining in capital spending. He forecasts that it will sell oil fields in the North Sea, where it owns a smorgasbord of stakes in oil and natural gas fields; in Nigeria, where Shell’s production has been cut by unrest; and in North America, where the company has been losing money.
“We are at a point where so much of the money being earned needs to be reinvested in the businesses that there isn’t much left for shareholders,’’ Mr. Rats said during an interview on Monday. He said that over the past four quarters, the five major European oil companies — BP, Shell, Total, Eni and Statoil — had negative cash flow of $2 billion, not counting asset sales, while promising dividends of $35 billion. The likely to way to fill the hole is through faster disposals of assets, he said.
Shell is far from being the only company that may make major disposals. BP kicked off the trend after the Gulf of Mexico disaster in 2010 forced it to raise cash. BP was pleasantly surprised by how much money — $38 billion to date — it was able to raise from these sales, and has made a virtue of necessity. The company now says it will pursue an additional $10 billion in disposals, partly to fund buybacks.
BP may be plagued by problems, including continuing litigation in the United States, but its chief executive, Robert W. Dudley, does seem to be listening to investors. “We understand that we have to prove ourselves capable of running major global portfolios and balancing investment against returns,” Mr. Dudley told analysts last autumn.
Eni, the Italian energy giant, has also been putting properties on the block. Last year it sold a stake in its giant Mozambique gas discovery for $4.2 billion, and executives have said they are open to selling more in Mozambique and elsewhere. “We are reducing our working interest in some giant projects,” Claudio Descalzi, Eni’s head of exploration and production, told analysts in October. “We are starting also a restructuring of our portfolio.”
The destabilisation of Royal Dutch Shell gathers pace
While speculation still swirls about the unexpected early exit by Peter Voser and the abrupt departure by Peter Rees, we can now add the name of Andy Brown to the mystery about the seismic developments and uncertainty that has engulfed Royal Dutch Shell Plc.
By John Donovan
Three weeks ago I published an article under the headline Voser wisely abandons an unstable ship.
I listed some of the factors that led me to make that assessment.
Since then the destabilisation of Royal Dutch Shell has gathered pace with the profits warning that shocked the markets on Friday.
Today, Shell made an announcement about Andy Brown, the third exit (in his case extended medical leave after heart surgery) from the committee of executive directors in as many weeks.
While speculation still swirls about the unexpected early exit by Peter Voser and the abrupt departure by Peter Rees, we can now add the name of Andy Brown to the mystery about the seismic developments and uncertainty that has engulfed Royal Dutch Shell Plc.
It really is an unstable ship with the new captain rightly or wrongly blaming his incompetent predecessors, especially Jeroen van der Veer, for the mess, the same man who apparently also impeded the progress of Ben van Beurden to the top job.
Thus far there have been 101 excuses , but with no one stepping forward to admit responsibility.
No word either from Shell Chairman Jorma Ollila, who seems to be presiding over the disintegration of the company. All reminiscent of the decline that overtook Nokia.
RELATED
Top 10 assets in Shell’s $30bn garage sale
As oil major Shell starts a disposal programme, we look at the assets that could be sold
By John Ficenec: 12:28PM GMT 20 Jan 2014
Oil giant Royal Dutch Shell has started one of the largest asset disposal programmes in the global oil industry with the £700m sale of natural gas assets to Kuwait.
Ben van Beurden, who recently took over from Peter Voser as chief executive, needs to sell assets in order to balance the books at Shell, as the FTSE 100-listed group continues to invest heavily in oil exploration in harder to reach places.
Analysts from investment bank JP Morgan Cazenove recently drew up a shopping list of assets that could be on the chopping block:
1 – 23.1pc stake in Woodside Petroleum worth $7bn
Shell wanted to own the whole refinery located in Perth, western Australia, but the deal was blocked by the Australian government, now it has an orphaned stake. Shell has already sold down a third of its holding in November 2010 for $3.3bn, so the remaining $7bn stake tops the list of assets that could be for sale. Rumoured buyers would be sovereign wealth funds interested in the long-term earnings potential of the facility.
2 – 10pc of global retail network worth $4.4bn
Quite literally a garage sale, in early January Norwegian newspapers highlighted that Shell was considering selling more than 400 gas stations across Norway, this would be the beginning of a continued shrinking of the global network of Shell stations.
3 – Pipelines worth $3.5bn
Shell has huge amounts of pipeline infrastructure that expose the group to maintenance and running costs that are arguably outside the group’s main focus of finding oil.
4 – Shale oil assets worth $3bn
Shell has interests in US shale oil in Mississipi Lime, Kansas and Oklahoma. However, after drilling test wells this shale oil, or tight oil, does not meet with Shell’s long-term investment targets, basically it is too complicated and costly to get out of the ground in reliable amounts. Fine for a smaller operation but not suitable for an oil major.
5 – Eagle Ford shale asset worth $2.1bn
Sale plans for the 106,000 acre shale oil site at Eagle Ford in South Texas were announced in September of last year. Once again smaller firms have thrived in this business but larger players have had an unhappy time and are looking to exit.
6 – Nigerian Delta licenses worth $1.8bn
Oil exploration in Nigeria is fraught with difficulties. Theft, corruption and sabotage have been grabbing the headlines rather than profitability. Shell will probably want to distance itself from the region the sale of licenses in the East Niger Delta and the Nembe Creek Trunk Line would help this process.
7 – Refinery operations around the world worth $1.8bn
Oil and gas refineries located around the world in places such as Geelong, Australia, and Buenos Airies, Argentina, are earning lower margins as competition increases.
8 – Showa Shell stake worth $1.4bn
The Japanese based oil refinery operator in which Shell owns a 35pc stake could be sold off so the company can focus on exploration.
9 – Liquefied Petroluem Gas (LPG) business worth $1.2bn
The oil major has been slowly exiting its LPG businesses around the world and the sale of remaining interests in Vietnam and elsewhere could be speeded up under a new strategy.
10 – Property portfolio worth $545m
The group has built up some significant property holdings around the world during its history. As property prices rise it would make sense to capture some record high prices with well timed sales of around a third of the global portfolio.
The top ten assets make up $25bn of a potential $30bn in assets that Shell could sell during the next two years.
Monday’s sale comes after Shell warned on Friday that full-year profits would be “significantly lower” than expected, sending shares down 1.2pc. They fell another 0.9pc on Monday morning.
Mr van Beurden is expected to reveal his long-term plan for further asset disposals when he presents full-year results next week.
Shell’s Arrow Energy to slash hundreds of jobs
Royal Dutch Shell’s Arrow Energy coal seam gas venture in Queensland is set to cut potentially hundreds of jobs as speculation mounts that the proposed LNG project will be a casualty of reined-in spending by the oil major. One source said up to 600 jobs would go, representing half of the workforce.
Angela Macdonald-Smith: January 20, 2014
Royal Dutch Shell’s Arrow Energy coal seam gas venture in Queensland is set to cut potentially hundreds of jobs as speculation mounts that the proposed LNG project will be a casualty of reined-in spending by the oil major.
One source said up to 600 jobs would go, representing half of the workforce. Another put the figure at 400 jobs out of the 1200 employed at the venture, which is half-owned by PetroChina.
The statement comes amid media reports that managers in Arrow were travelling to regional centres in Moranbah and Dalby to kick off the job reductions.
Arrow produces coal seam gas for sale to businesses in Queensland and has also been working on a potential $20 billion-plus LNG project. However, work on the project has slowed amid a glut of LNG construction in Queensland, involving three similar projects already being built on Curtis Island in Gladstone.
Shell’s shock profit warning last Friday had already heightened speculation that the Arrow LNG project won’t go ahead, and confirmed expectations that the oil giant’s stake in Woodside Petroleum and its Australian refinery business will be sold.
Same Publisher: Shell profit downgrade casts shadow over sale of Geelong refinery
Peter Ker: Resources reporter
Suitors for Shell’s Geelong refinery have been reminded of the extremely challenging nature of the business, with the global oil giant revealing that conditions for the downstream industry have worsened over the past year.
The refining segment of Shell’s business was one of several highlighted in a significant profit downgrade announced late on Friday night in Europe by the company’s new chief executive, Ben van Beurden.
Mr van Beurden revealed that December quarter profits had almost halved compared with the same quarter in 2012, on the back of higher exploration costs, poor conditions in refining and other ”downstream” businesses.
The profit warning was Shell’s first in almost a decade
Shell’s Oil Production Director Andy Brown Takes Medical Leave
“First Voser, then Rees and now Brown…would the last one to leave the CMD please remember to turn out the lights?”: “Just read the news on your site! What is happening??? Never heard any rumour he was not well. And to quote Yogi Berra: ‘It ain’t over till it’s over’…. Who is next?”
By Eduard Gismatullin January 20, 2014
Royal Dutch Shell Plc (RDSA), the biggest oil company in Europe, said its production director Andy Brown is taking leave to recuperate from recent medical treatment.
Maarten Wetselaar, executive vice president for integrated gas projects, will be acting upstream chief in addition to his duties until Brown returns, The Hague-based Shell said today in a statementwithout indicating when that might be.
Brown, at Shell for about 30 years, became head of upstream operations in 2012. He has led the Pearl gas-to-liquids project in Qatar, the Anglo-Dutch company’s most expensive, and was responsible for the Qatargas-4 liquefied natural gas venture.
He was an internal candidate to be chief executive officer at Shell after Peter Voser unexpectedly quit last year. Ben van Beurden, a former refining executive, became CEO from Jan. 1.
To contact the reporter on this story: Eduard Gismatullin in London ategismatullin@bloomberg.net
To contact the editor responsible for this story: Will Kennedy atwkennedy3@bloomberg.net
COMMENT RECEIVED FROM “OUTSIDER”
First Voser, then Rees and now Brown…would the last one to leave the CMD please remember to turn out the lights?
My guess is that Shell’s bottom line is going to take a hit of over $1bn per year with the reduction in Groningen output – does anyone have the data for a more accurate calculation?
COMMENT RECEIVED FROM “AN OLD EP HAND”
Hello John
Just read the news on your site! What is happening??? Never heard any rumour he was not well.
And to quote Yogi Berra: ‘It ain’t over till it’s over’….
Who is next?
COMMENT RECEIVED FROM AsiaDragon: Submitted on 2014/01/20
Ben, if it is true Andy is leaving, bring an Asian to the CMD to make a real difference.
The TRUTH will set you FREE.
