Shell Goes Full BP

Guest “Who gives a flip about what Europe does?” by David Middleton

SEPTEMBER 21, 2020 12:47 AM UPDATED 3 DAYS AGO
Exclusive: Shell launches major cost-cutting drive to prepare for energy transition
By Ron Bousso

5 MIN READ

LONDON (Reuters) – Royal Dutch Shell is looking to slash up to 40% off the cost of producing oil and gas in a major drive to save cash so it can overhaul its business and focus more on renewable energy and power markets, sources told Reuters.

[…]

Shell is exploring ways to reduce spending on oil and gas production, its largest division known as upstream, by 30% to 40% through cuts in operating costs and capital spending on new projects, two sources involved with the review told Reuters.

Shell now wants to focus its oil and gas production on a few key hubs, including the Gulf of Mexico, Nigeria and the North Sea, the sources said.

[…]

Reuters

Firstly, leave it to a journalist to totally frack up an article.

Royal Dutch Shell is looking to slash up to 40% off the cost of producing oil and gas in a major drive to save cash so it can overhaul its business and focus more on renewable energy and power markets, sources told Reuters.

MA in History of International Relations

No. Shell is not “looking to slash up to 40% off the cost of producing oil and gas”… They are looking at slashing upstream capital expenditures by 30-40%. They are looking to produce less oil and gas in the future because of an imaginary energy transition. Surprisingly, Tsvetana Paraskova of Oil Price Dot Com got the story right, even though she relied on the Reuters article as a primary source.

Shell is looking at ways to cut costs in its biggest division currently, the upstream, by 30 percent to 40 percent via cutting operating costs and slashing capital expenditure (capex) on new oil and gas exploration and production projects, two sources involved in the cost-cutting review told Reuters. The Anglo-Dutch supermajor will aim to streamline its upstream division by focusing on just a few hubs such as the U.S. Gulf of Mexico, the North Sea, and Nigeria, according to Reuters’ sources.

[…]

With the push toward a greener portfolio, Shell joins peers such as BP, which said in its new strategy last month that it would reduce its oil and gas production by 40 percent by 2030 through active portfolio management and would not enter exploration in new countries.  

Oil Price Dot Com

My first thought was, “Fantastic!”… By going full BP, Shell would open up opportunities for real oil companies in the Gulf of Mexico… But, Shell either knows that President Trump will be reelected or that Joe Biden isn’t as retarded as he acts. Shell plans on remaining the 800 pound gorilla in the Gulf of Mexico. Shell is the top oil and gas producer in the Gulf of Mexico, by a wide margin. BP ranks second in both oil & gas production.

Top 50 Oil Producers US Gulf of Mexico

RankBusiness Association Name Gas (mcf/d)  Oil (bbl/d) 
1Shell Offshore Inc.        649,437    457,560
2BP Exploration & Production Inc.        242,015    324,160
3Anadarko Petroleum Corporation        203,378    221,731
4Chevron U.S.A. Inc.          99,349    182,467
5Union Oil Company of California          21,526      89,994
6Murphy Exploration & Production Company – USA        159,892      83,757
7Hess Corporation        158,913      61,365
8LLOG Exploration Offshore, L.L.C.          91,925      53,428
9Fieldwood Energy LLC        158,146      52,699
10BHP Billiton Petroleum (GOM) Inc.          21,488      48,736
11Kosmos Energy Gulf of Mexico Operations, LLC          31,446      35,053
12Exxon Mobil Corporation          12,968      33,576
13Talos ERT LLC          39,465      28,834
14Arena Offshore, LP        122,995      26,907
15EnVen Energy Ventures, LLC          34,886      26,511
16Walter Oil & Gas Corporation        116,806      24,258
17Cox Operating, L.L.C.        110,910      23,956
18Beacon Growthco Operating Company, L.L.C.          27,401      20,809
19Talos Petroleum LLC          35,933      20,165
20W & T Offshore, Inc.          77,966      18,172
21Eni Petroleum Co. Inc.          38,233      14,021
22Shell Gulf of Mexico Inc.          80,616      12,850
23Cantium, LLC          10,896      12,300
24GOM Shelf LLC          17,923        6,360
25ANKOR Energy LLC          14,785        5,513
26Renaissance Offshore, LLC          15,181        2,942
27Byron Energy Inc.            3,825        2,524
28Talos Energy Offshore LLC          15,985        2,057
29Equinor USA E&P Inc.            1,546        1,829
30Castex Offshore, Inc.          29,348        1,720
31Marubeni Oil & Gas (USA) LLC            2,600        1,308
32ConocoPhillips Company            2,134        1,098
33Sanare Energy Partners, LLC          14,054        1,092
34Helis Oil & Gas Company, L.L.C.            4,200           994
35Energy XXI GOM, LLC            3,463           948
36W & T Energy VI, LLC          15,648           943
37Apache Deepwater LLC            1,278           885
38Ridgelake Energy, Inc.               257           718
39MC Offshore Petroleum, LLC               694           662
40GoMex Energy Offshore, Ltd.                 15           651
41Deepwater Abandonment Alternatives, Inc.               731           472
42Tana Exploration Company LLC            3,280           334
43Bois d’ Arc Exploration LLC               154           251
44Whitney Oil & Gas, LLC               234           213
45EPL Oil & Gas, LLC                 82           191
46Peregrine Oil & Gas II, LLC               118           158
47Contango Operators, Inc.          23,414           133
48Flextrend Development Company, L.L.C.                 76             79
49MP Gulf of Mexico, LLC                 42             26
50Cochon Properties, LLC            3,028               5

BSEE

Most people have probably never heard of most of the companies on this list… Some companies are listed as multiple business associations, due to their corporate structures. Most of the companies that you probably never heard of, got on this list by acquiring the assets of companies that you had heard of. Shell and BP divesting Gulf of Mexico assets in the current price environment would be fracking awesome for the companies you probably never heard of. But, I digress…

Why would oil companies commit suicide?

The recent headlines have been full of stories detailing how the ChiCom-19 COVID-19 disease has brought Peak Oil back from the future and how all the oil companies are going green.

Can These 3 Oil Giants Turn Into Renewable Energy Stocks?
Don’t miss out on the transformation of a lifetime.

Daniel Foelber
Aug 22, 2020

The energy transition is well under way as renewable electricity capacity continues to grow around the world. Unbeknownst to many is the role that oil and gas companies are playing in this transition, a handful of which have recently upped the ante considerably.

Let’s look at three oil majors that are aggressively targeting renewable investments to determine if they can transform themselves into renewable energy stocks over the coming decades.

Renewables are skyrocketing
From 2010 to 2019, over 1,400 GW of renewable energy capacity was added throughout the world.

[…]

Shell
First on this list is Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B), the largest European oil major by market capitalization. According to Bloomberg, Shell is leading its European peers: “European majors closed seven times as many deals with renewable-electricity and storage companies as their U.S. counterparts since 2010.”

[…]

BP
BP (NYSE:BP) doesn’t just want to increase its renewable portfolio, it wants to downright dominate renewable energy.

[…]

Equinor
Equinor ASA (NYSE:EQNR) is Norway’s largest oil and gas company. With the government and Norway’s national pension fund owning 70% of the company, Equinor’s interests and strategical shifts are naturally going to be somewhat aligned with Norway’s agenda, renewable energy focus, and long-term support of the Paris Agreement.

[…]

The Motley Fool

After a lot of babbling about “skyrocketing” renewables, the mythical “energy transition” and Euro-virtue signaling, young Mr. Foelber actually hits the nail on the head.

In April, Shell and Equinor cut their dividends by two thirds. In early August, BP cut its dividend in half. Even with the cuts, Shell still yields a respectable 4.1%, BP yields 5.5%, and Equinor yields 2.2%. Meanwhile, ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) haven’t cut their payouts, and yield 8.2% and 5.7%, respectively.

Shell, BP, and Equinor also have some of the weakest balance sheets of the oil majors, and sport higher debt to capital ratios and debt to equity ratios compared to their American counterparts.

And although shares of Equinor are down the least of all the oil majors, BP and Shell are both down over 40% year-to-date (YTD), the worst of the cohort. 

A long road ahead

Exxon’s long-term dedication to oil and gas and Chevron’s current status as arguably the best oil stock make it unlikely either company will be a strong renewable force in the coming decades. However, the impacts of the COVID-19 pandemic seem to have accelerated the energy transition for Shell, BP, and Equinor. All three businesses are struggling, and are likely exhausted by the volatility and low prices of oil and gas right now.

Shell remains a natural gas powerhouse, and it was just last year when the company had the best free cash flow of all the oil majors. Therefore, Shell probably won’t undergo a full-on transformation. However, BP and Equinor seem determined to transform into renewable energy stocks. Crippled by a weak balance sheet, the only thing surprising about BP’s dividend cut and renewable push is that they didn’t happen sooner. As for Equinor, the company’s expertise in offshore exploration and production, government interest, depleting offshore oil and gas assets, shallow coastline, and first-mover advantage into one of the highest growing subcategories of renewable energy make it ideally positioned to dominate offshore wind.

[…]

The Motley Fool

This is worth repeating:

However, the impacts of the COVID-19 pandemic seem to have accelerated the energy transition for Shell, BP, and Equinor. All three businesses are struggling, and are likely exhausted by the volatility and low prices of oil and gas right now.

Worth repeating

Mr. Foelber also provided a couple of really good charts:

Figure 1. Debt to capital and debt to equity for failed European oil companies and American oil companies. The Motley Fool

The European oil majors are financially hurting, are being strangled by their own governments and expecting the strangulation to worsen unless they stop being oil companies. If BP, Shell and Equinor truly don’t want to remain oil companies, I have two words for them…

And Equinor really ceased to be an oil company a long time ago…

“The energy transition is well under way”

Horst schist!

In 2019, the world consumed more fossil fuel energy (492.3 exajoules) than the total primary energy it consumed as recently as 2009 (480.6 exajoules). There is no energy transition “underway”…

Figure 2. It’s a fossil fueled world. BP Statistical Review of World Energy

For that matter, there has never been an “energy transition.” We currently consume more biomass for energy than we did before we started burning coal.

Figure 3. No energy transitions for you! “There Has Never Been An Energy Transition

The second quarter of 2019 was a global economic catastrophe. It was caused by a Chinese Communist virus and governmental overreaction to that virus. It resulted in a sharp drop in energy consumption, comparable to a deep recession. It did not herald in a new era of people willingly staying home and freezing in the dark.

ChiCom-19 COVID-19 forced many of us to work from home for most, if not all, of the past six months. No one in the real world views this as the “new normal”… It’s more like a prolonged hurricane evacuation.

Returning to the real normal

Commuting Patterns During COVID-19 Endure; Minorities Less Likely to Work from Home

Alexander Bick, Adam Blandin and Karel Mertens September 01, 2020

COVID-19 forced many businesses to scale back or cease operations in their regular workplaces because of government-mandated closures, concern for employee health or lack of customers.

Some workers transitioned to working from home relatively easily. In many jobs, however, performing regular work activities from home is impossible, forcing many individuals to become inactive or look for a new job.

In earlier research based on data from the Real Time Population Survey, a novel online labor survey of households, we found that 35.2 percent of those employed in May worked entirely from home, up sharply from 8.2 percent of those employed in February. Subsequently, we find a bounce-back since May in employment growth within the previously low work-from-home sectors.

Many Continue Working from Home Daily

Chart 1 compares the February commuting behavior of the workforce (ages 18 to 64) with commuting behavior in subsequent months. Changes in commuting patterns during the pandemic are the combined effect of increases in working from home and decreases in employment.To better distinguish between the role of home-based work and declines in employment, all numbers in Chart 1are expressed as fractions of February employment rather than as of the workforce in the current month.

In May, only 37.8 percent of the pre-pandemic workforce commuted on a daily basis, compared with 73.8 percent in February. At the same time, the share working entirely from home rose from 8.2 percent in February to 26.0 percent in May (both as a fraction of February employment). Moreover, 26.1 percent of workers were no longer employed in May.

Since May, the number of daily commuters (as a fraction of pre-pandemic employment) rose gradually to 49.0 percent in August—still well below pre-pandemic levels. Over the same time period, the share of nonemployed decreased to 16.0 percent of February employment.

The fraction of entirely home-based workers declined slightly in August relative to earlier in the pandemic but remained very high at 20.3 percent. As a ratio of actual employment rather than pre-pandemic employment, 24.2 percent of workers ages 18 to 64 worked entirely from home in August, down from 35.2 percent in May.

[…]

Federal Reserve Bank of Dallas

Figure 4. Commuting rate. Federal Reserve Bank of Dallas

Many companies began returning to work in May, as states began reopening their economies. The reopening led to a sharp recovery in gasoline demand and partial recovery of oil prices. The reopening and return to commuting slowed and was partially reversed when some states experienced a brief resurgence in COVID-19 cases.

Figure 5. US gasoline demand. EIA This Week in Petroleum

Despite the stalled return to commuting, gasoline stocks are back in the normal range for this time of year.

Figure 6. US gasoline stocks. EIA This Week in Petroleum

Crude oil stocks are on a trajectory to soon be back into the normal range.

Figure 7. US crude oil stocks. EIA This Week in Petroleum

Goldman Sachs now expects oil prices to rally to $55-65/bbl by the third quarter of 2021.

Analysts at the bank forecast international benchmark Brent will rally to $65 per barrel from $45 per barrel by the third quarter of 2021 and settle at $58 by end-2021. West Texas Intermediate crude is now forecast to hit $55.88 from $51.38 next year.

“Key to the resilience of spot prices, despite stalling inventory draws this summer, has been the steady rally in long-dated prices,” Goldman Sachs said in a note dated August 30.

Going long on deferred Brent prices would result in an improved risk-reward for investors looking towards an “effective portfolio hedge” against uncertainty, analysts said in the note.

“There is a growing likelihood that vaccines will become widely available starting next spring, helping support global growth and oil demand, especially jet,” the note said.

Business Insider

In an even more bullish “forecast,” the CEO of Russia’s Gazprom Neft expects crude oil demand to fully recover to pre-pandemic levels by the second half of 2021.

When will US oil production begin to rise again?

Next year, if Goldman Sachs’ forecast comes to fruition. Since 2009, US oil production has increased when the benchmark US oil price, West Texas Intermediate (WTI), has been above $45/bbl.

Figure 8. US crude oil production and WTI price. (EIA)

The red boxes outline periods when oil prices were steadily above $45/bbl and production was rising. When oil was steadily lower than $45/bbl, production declined. When oil prices rise above $45/bbl in a sustained manner, we can expect to see drilling activity pick up again.

This analysis was published in December 2019:

Oil And Gas Production Forecast: 2020 And Beyond
Growth slows in 2020, hinging on global demand and the market’s ability to support continually increasing output.

Rob McBride, Jesse Mercer and Brendan Nealon, Enverus Energy

Mon, 12/02/2019

[…]

Although market conditions today do not portend outright production declines as witnessed in 2015-2016, it does appear to be the case that the slowdown in global economic activity will diminish the outlook for petroleum liquids consumption and, therefore, will have a cooling effect on outright crude oil prices. The question on most people’s minds today is what will happen to U.S. tight oil production in the aggregate if the price of WTI continues to linger in the low $50s. Would producers further reduce capex at these low prices, and what price level would be required to convince producers to increase capex again so that the recent slowdown in production growth can be reversed?

Figure 15 summarizes the impact on total U.S. crude and condensate production amid various price environments for WTI crude starting in January 2020 (for the balance of 2019, Enverus assumes operators will hold true to their annual production guidance estimates). Given the breakeven analysis presented earlier, it should be no surprise that $50/bbl is the level that keeps U.S. crude and condensate production growing. In fact, it would not take too much of a decrease in prices below $50/bbl WTI to send production into an outright decline in 2020. Note the white space between the lines; starting at $50/bbl production rises modestly with each $5/bbl increase in the price of WTI. Contrast that with the drop in output over the next year when the industry takes the price of WTI down from $50/bbl to $45/bbl.

[…]

Hart Energy

Clearly, no one was expecting the one-two punch of COVID-19 and the Soviet-Saudi price war at the time it was written, but the $45-50/bbl threshold for growth was clearly laid out.

Figure 8. (Hart Energy Figure 15) US crude oil price sensitivity. (Enervus/Hart Energy)

Companies will start layering on hedges and production will start growing again, starting with the Permian Basin.

As prices climb toward $50/bbl, other tight oil plays should see a resumption in growth.

Figure 9. Crude oil price sensitivity by basin. (Enervus/Hart Energy)

Unlike 2016, US operators had already begun to trim CapEx prior to the crash due to softness in oil prices. When the bottom fell out in March, the industry rapidly slashed CapEx and, in many cases, even shut in production.

Figure 10. Quarterly CapEx 2016-2019. (EIA Financial Review: Second-Quarter 2020)

Most of the shut in production has been brought back on, but growth won’t ensue until prices recover a bit more.

“Déjà vu all over again” or is it?

Back in November 2014, OPEC declared war on US “shale” producers. US crude oil stocks immediately shot through the roof and it took nearly 3 years to work off the glut. 2020 looks very different.

Figure 11. US crude oil stocks, thousands of barrels. (EIA)

Since 2014, the industry has adjusted to lower prices and was clearly more prepared for this price shock than the last one. Oil’s well that ends well.

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September 25, 2020 at 04:23AM

Author: uwe.roland.gross

Don`t worry there is no significant man- made global warming. The global warming scare is not driven by science but driven by politics. Al Gore and the UN are dead wrong on climate fears. The IPCC process is a perversion of science.