and now Shell is pulling way back on the throttle…expect deepwater to be a big part of that move
[B]Shell Reorganizes as it Plans for ‘Prolonged Downturn’[/B]
by Jon Mainwaring
Tuesday, November 03, 2015
Royal Dutch Shell plc said Tuesday it is planning for a prolonged downturn due to low oil prices as the firm announced a reorganization of its upstream operation would increase accountability for performance and align the company to deliver on its strategy.
In a statement to coincide with the firm’s ‘management day’, Shell said that both its net investment and dividend payments have been covered by operating cash flow in the year to the end of the third quarter of 2015 – a period during which oil prices averaged $60 per barrel.
Shell highlighted cost cutting that has seen a 10-percent reduction in operating costs and a 20-percent reduction in capital spending during 2015, together amounting to $11 billion. The firm’s drive to reduce costs and simplify its business has led to the announcement of jobs losses for some 7,500 staff and direct contractors so far in 2015.
Shell showed recently that it is prepared to be hard-nosed when it comes to certain upstream projects after it announced Oct 27 that it would shelf an oil sands project in Alberta into which it had already invested billions of dollars. The move to abandon the Carmon Creek heavy oil project followed its decision in late September to cease exploration activity offshore Alaska.
Shell said Tuesday that it is also being “highly selective” on new investment decisions.
The firm expects to complete its takeover of BG Group in early 2016 and it has identified a further $1 billion of pre-tax synergies to bring cost savings from combining the businesses to a total of $3.5 billion by 2018.
As part of its restructuring, Shell will make its Integrated Gas division a standalone entity in order to reflect its enlarged scale (it has grown from being a $2 billion cash flow business in 2009 to one that has generated $11 billion of cash during the last three years). This new business will be headed by Maarten Wetselaar.
Meanwhile, the new upstream organization will be led by Marvin Odum – who is Shell’s current Upstream Americas director.
Shell CEO Ben van Beurden commented in the firm’s management day statement:
"Low oil prices are driving significant changes in our industry. I am determined that Shell will be at the forefront of that, and emerge as a more focused and more competitive company as a result.
"BG rejuvenates Shell’s upstream by adding deep water and integrated gas positions that offer attractive returns and cash flow, with growth potential. These are industries where Shell has significant capabilities and technologies. With enhanced positions in both of these themes, Shell can focus on the best positions, and deliver a more structured and predictable investment program.
“We are re-shaping the company and this will accelerate once this transaction is complete. Upstream will be reorganized to increase accountability for performance, and to better align the organization with the company strategy. Asset sales and hard choices on capital spending, such as the recent announcements to cease exploration in Alaska and the development of Carmon Creek heavy oil in Canada, all underline the changes that are underway. Integration planning for Shell and BG is progressing according to plan and today we’re announcing a 40-percent increase in synergies expected from the recommended combination.
“Shell is becoming a company that is more focused on its core strengths, a company that is more resilient and competitive at all points in the oil price cycle and that has a more predictable project development pipeline. We’ll grow to simplify.”
[QUOTE=Fraqrat;173005]Of course it’s all doom and gloom, you tell everyone it’s bleak, stock price tanks, you buy on the cheap. Two years from now the stock quadruples, sell high, pay no taxes, rinse, repeat.[/QUOTE]
it’s cash flow, cash flow, cash flow my good squid
[B]‘Lower for Longer’ Shaping the New Operator Strategic Paradigm
by Delia Morris
Tuesday, November 03, 2015
In light of the “lower for longer” oil price scenario going into 2017-2018, companies have reduced upstream CAPEX spend in 2015 and beyond.
With Chevron Corp. and Exxon Mobil Corp. rounding out third quarter 2015 earnings calls Oct. 30, some major themes have emerged for the integrated oil companies and large independents. In light of the sustained low oil price environment that has prevailed over the last 16 months, and expectations for a “lower for longer” scenario going into 2017-2018, companies have reduced upstream capital expenditures (CAPEX) in 2015 and indicated more dramatic cuts for the 2016-2018 period.
BP plc announced CAPEX plans of between $17 billion to $19 billion through 2017 in its Oct. 27 call, which represents a 30 percent cut from previous guidance. Similarly, Chevron plans to cuts its capital expenditures through 2018; and in 2016, the company anticipates capital outlays in the range of $25 billion to $28 billion (down 25 percent versus 2015), and expects somewhere between $20 billion and $24 billion for the 2017-2018 period.
For the companies that reported a profit during the quarter, e.g., Total S.A., Chevron and ExxonMobil, earnings were sharply down from previous periods, with the companies’ refining and chemicals operating segments compensating for drastically reduced profits (and, in some cases, losses) in the upstream part of the business. Although many companies increased crude output for the quarter, the higher volumes were not enough to offset lower realized prices. (The average Brent price in the third quarter 2015 hovered around $50/bbl).
During last weeks’ calls, some management teams from companies that posted losses for the quarter, which included Royal Dutch Shell plc, ConocoPhillips, Hess Corp., and Anadarko Petroleum Corp., took the opportunity to unveil major strategic shifts in asset portfolios. Most notably, was Shell’s announcement that it was exiting its 80,000 barrels per day (bpd) oil sands project in Alberta, Canada, and would take a $2 billion charge for the third quarter. Meanwhile, Total’s 69 percent decline in earnings versus the same time last year was largely attributable to a $650 million write-down related to its remaining 29 percent stake in the Fort Hills oils sands project in Alberta, Canada. ConocoPhillips made a surprise announcement that it was going to cut exposure to future deepwater exploration by 2017, and will implement a “phased exit” from the space, which would include the eventual sale of a major position in the Gulf of Mexico (2.2 million acres), with three existing discoveries.
Many companies revised down guidance for 2017 production targets, and signaled further deferments of major/long-cycle projects, which, in turn, was a reason to lower capital spending going forward. It is important to note, however, that management in many calls, emphasized that lower capital outlays over the next two to three year period indicated a structural shift in costs. Management from several companies stated that new, lower break-even Brent oil prices were now within reach: BP at $60/bbl; Shell at $55/bbl; Total at $60/bbl; and, Eni S.p.A at $63/bbl.
Some onshore operators cited cost savings exceeding 40 percent from service cost deflation and from drilling efficiencies. For offshore operators, there was mention of considerable service cost and equipment savings. The reductions were not to the same order of magnitude as for onshore operations, where batch drilling and other efficiencies have led to a significant contraction in the average drilling and completion time per well.
Although anticipated by the market, Occidental Petroleum Corp., confirmed in its earnings call, that it was exiting the comparatively high operating cost environment of the Bakken shale, with the sale of its properties in the area, for $600 million (to an undisclosed buyer). The company also intends to shed assets in the Middle East and to focus more on the lower-cost Permian Basin, where many companies are seeing the greatest benefit from operational efficiency gains and cost deflation. ExxonMobil, in its call, confirmed that it had added 48,000 acres to its 135,000 operated net acre portfolio in the Midland Basin of the Permian. The Energy Information Agency (EIA) issued a report Oct. 30 on U.S. oil production for August 2015, where it showed that in the majority of tight oil plays across the country, production was falling off. Only in the Permian was production ramping up – with the EIA estimating that it increased by 64,000 bpd from April to September.
we are seeing the mid 1980’s all over again with this downturn so expect the bankruptcies to begin in earnest in 2016