Why I’ve Sold Royal Dutch Shell plc
Okay, I know this will be controversial, but I really have just sold my shares in Shell. Some might argue that Shell’s new chief executive is ‘kitchen-sinking’ all the bad news in this quarter, but I very much doubt that this is the case. The company’s difficulties are more deep-seated and structural.
By Prabhat Sakya – Wednesday, 29 January, 2014
Okay, I know this will be controversial, but I really have just sold my shares in Shell.
A company’s recent share price is based on its past profitability.
But its current profits are falling. Full-year profits are expected to be 23% down on last year, and the trend in profitability is clearly downward.
The sudden, sharp fall in profitability has taken me, and many other investors, by surprise.
Shell has invested substantially in gas, particularly liquefied natural gas (LNG). Yet, as more and more shale gas has been produced, the gas market has been over-supplied far more quickly than anyone expected, and gas prices have tumbled.
Some might argue that Shell’s new chief executive is ‘kitchen-sinking’ all the bad news in this quarter, but I very much doubt that this is the case. The company’s difficulties are more deep-seated and structural.
Shell Plans Boat to Tap Gas Fields
By Justin Scheck: Jan. 28, 2014 11:16 p.m. ET
Royal Dutch Shell PLC says it has a way to spend less on tapping remote natural-gas fields. There’s just one catch: It will cost at least $10 billion, according to people who have worked on the project.
Shipyard workers in South Korea are building a hull for the Anglo-Dutch company that stretches more than 1,600 feet from bow to stern. The boat will drop anchor in a natural-gas field, chill the gas into liquid and pump it into…
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Shell Oil quietly downsizes its downtown operations
Shell Oil is vacating a huge block of downtown office space in Two Shell Plaza. The renovation of the 26-story Two Shell Plaza will be a powerful marketing tool as Hines leases up the office space Shell will vacate at the end of 2014. Shell will move out of all but two floors in Two Shell, leaving behind some 400,000 square feet of vacancy…
Shell To Sell 23% Interest In Offshore Brazil BC-10 For $1 Bln
1/29/2014 2:14 AM ET
European energy giant Royal Dutch Shell Plc Wednesday revealed an agreement to sell a 23 percent interest in the Parque das Conchas (BC-10) project offshore Brazil to Qatar Petroleum International for about $1 billion.
Shell to sell a stake in a key U.S. Gulf Coast crude oil pipeline
Royal Dutch Shell Plc wants to sell a stake in a key U.S. Gulf Coast crude oil pipeline for as much as $1 billion and is working with Barclays Plc to solicit offers, a source familiar with the matter told Reuters.
Oil Profits Slump as Higher Spending Fails to Lift Output
Investors are shunning the world’s biggest oil companies as drilling costs surge, major projects are delayed and energy prices stagnate. Shell, the second-largest oil company by market value, will report its lowest fourth-quarter profit since 2009 after The Hague-based explorer was socked with cost overruns on some of its most important new fields. Ben van Beurden, who took the helm at Shell at the start of the year, said Jan. 17, in Shell’s first profit-warning in a decade, that disruptions in Nigeria, weak refining margins and lower U.S. natural gas production brought down earnings.
Jan 29, 2014 12:00 AM GMT
Investors are shunning the world’s biggest oil companies as drilling costs surge, major projects are delayed and energy prices stagnate.
Crude and natural gas producers from Royal Dutch Shell Plc (RDSA)to ConocoPhillips began issuing profit warnings three weeks ago as they tallied the extent of fourth-quarter disappointments. Shareholders have punished the stocks, making the energy sector the worst performer in the MSCI World Index this year, in anticipation of bleak earnings disclosures later this week.
Shell, the second-largest oil company by market value, will report its lowest fourth-quarter profit since 2009 after The Hague-based explorer was socked with cost overruns on some of its most important new fields. BG Group Plc (BG/) tumbled the most in 25 years on Jan. 27 after slashing its 2014 production target because of turmoil in Egyptand project delays elsewhere.
“Investors have lost interest in the big energy companies,” said Fadel Gheit, an analyst with Oppenheimer & Co. in New York. “They offer little or no growth.”
The bad news may start tomorrow as Shell, Exxon Mobil Corp., ConocoPhillips and Occidental Petroleum Corp. announce fourth-quarter results. Chevron discloses profit the next day, followed by BP Plc (BP/) and BG next week.
“It’s not going to look pretty across the sector,” said Jason Kenney, an analyst at Banco Santander SA in Edinburgh. “This is a high-spending industry, and the larger projects are sucking in capital. Companies need to convince the market on capital discipline and be more proactive in delivering value.”
Two-fold Problem
The problem for the oil majors is two-fold: costs are rising and oil prices aren’t, while the complexity of developing the most recent oil and gas discoveries is preventing drillers from reaching production targets. Brent crude prices, the benchmark for more than half the world’s oil, slipped 0.3 percent last year, the first time that prices failed to gain since the global financial crisis in 2008. Prices may slip below $90 a barrel by 2020, future contracts show.
The biggest producers haven’t kept up with gains in oil prices for the past few years. While Brent crude prices have more than doubled to $105 a barrel since the start of 2009, the top five oil and gas companies have gained just 13 percent since then, compared with an 81 percent increase in the Dow Jones Industrial Average.
Gorgon Budget
Chevron said last month the budget for the Gorgon natural gas export complex in Australia rose 4 percent to $54 billion, the second increase in 13 months. The project, which has Exxon and Shell as partners, may have to delay startup by three months because of weather and logistical delays. When Chevron approved the project in 2009, it estimated it would cost $37 billion.
On Jan. 9, the San Ramon, California-based company said that fourth-quarter profit was comparable to the $5 billion earned during the prior three-month period, down from the $7.25 billion posted during the final quarter of 2014. Analysts slashed their per-share earnings estimates in the days that followed and the shares have lost 5.8 percent of their value.
Ben van Beurden, who took the helm at Shell at the start of the year, said Jan. 17, in Shell’s first profit-warning in a decade, that disruptions in Nigeria, weak refining margins and lower U.S. natural gas production brought down earnings.
ConocoPhillips said on Jan. 7 that fourth-quarter production slipped to a nine-year low because of bad weather in the U.S. and the North Sea that hampered operations. Daily average output for the Houston-based company fell to the equivalent of 1.475 million barrels.
Shrinking Returns
Beset by shrinking returns and costly project delays, the world’s six largest energy oil explorers probably will curb spending on exploration and production, or E&P, this year to $148 billion from $149 billion after two consecutive years of 8 percent increases, Cowen and Company analysts including James Crandell said in a Jan. 7 report. Company executives are hoping to ward off a rising wave of shareholder activism by pro-actively rewarding investors, they said.
“It appears as if the supermajors are giving greater scrutiny to major E&P projects relative to returns,” the Cowen analysts wrote. “This is due to the rise in shareholder activism which could push these companies to distribute more of their large cash flows to shareholders via share repurchases and dividends.”
Still, there are limits to how much oil companies can cut spending if they want to maintain output over the next few years, said Christine Tiscareno, an equity analyst at S&P Capital IQ in London.
“Investors are getting angry and don’t want oil companies to invest,” Tiscareno said. “But if they don’t invest, they won’t be able to pay dividends in the future.”
To contact the reporters on this story: Joe Carroll in Chicago atjcarroll8@bloomberg.net; Brian Swint in London atbswint@bloomberg.net
To contact the editors responsible for this story: Will Kennedy atwkennedy3@bloomberg.net; Susan Warren atsusanwarren@bloomberg.net
Big Oil Companies Struggle to Justify Soaring Project Costs
By Daniel Gilbert and Justin Scheck: Jan. 28, 2014 11:00 p.m. ET
Chevron Corp., Exxon Mobil Corp. and Royal Dutch Shell PLC spent more than $120 billion in 2013 to boost their oil and gas output—about the same cost in today’s dollars as putting a man on the moon.
But the three oil giants have little to show for all their big spending. Oil and gas production are down despite combined capital expenses of a half-trillion dollars in the past five years. Each company is expected to report later this…
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