Replies to post #2364 on The Rising Influence of Rising Affluence

[DewDiligence]

Shell says Go for world’s first floating LNG facility (link below includes a 90-second video):

http://multivu.prnewswire.com/mnr/prne/shell/48922/ http://finance.yahoo.com/news/Shell-Decides-to-Move-Forward-prnews-2174415641.html?x=0&.v=1

From bow to stern, Shell's FLNG facility will be 488 metres long, and will be the largest floating offshore facility in the world – longer than four soccer fields laid end to end. When fully equipped and with its storage tanks full, it will weigh around 600,000 tonnes - roughly six times as much as the largest aircraft carrier.

The facility is expected to produce 110K boe/d for at least 25 years.

[DewDiligence]

This WSJ piece says Shell > XOM, but I’m not convinced.
(Both companies reported 2Q11 earnings today.) Comments?

http://online.wsj.com/article/SB10001424053111904888304576474350629961610.html

›Exxon's Turn to Shell Out

JULY 29, 2011
By LIAM DENNING And ANDREW PEAPLE

Exxon Mobil and Royal Dutch Shell really should pick different days to report their quarterly numbers. Investors could have been forgiven for wondering which was which on Thursday. Shell can live with that. For Exxon, it's a problem.

Over the past decade, Exxon's stock has traded at an average premium of 28% to Shell's on a forward price/earnings multiple. Two years ago, it stood at 60%. Today, however, the gap is a mere 9%. The reason is that what once weighed on Shell's valuation now burdens Exxon's. [Maybe the reason is that investors aren’t sure they like XOM’s newfangled interest in shale plays.]

Shell spent much of the past decade making up for the reserves scandal of 2004. Big capital expenditures were then required to rebuild the asset base. From 2005 to 2010, Shell reinvested 80% of its operating cash flow, according to data from Capital IQ, against an average for Exxon, BP and Chevron of 54%. Exxon's own figure was 40%. As the rest of the big oil companies passed on huge free cash flows to investors amid the oil boom, Shell had to toil away in the fields for its sins.

On Thursday, though, it was Exxon that raised concerns on spending. Exxon hasn't suffered a debacle like Shell. But as Shell did earlier, Exxon is now investing more to build new reserves, with a particular focus on unconventional natural gas [#msg-52105887]. Exxon spent $10.3 billion in the quarter, ahead of expectations, and left the door open to more "opportunistic" spending. In contrast, Shell spent $8 billion across the entire first half of the year.

Not only has Shell reined in spending, its cash-flow potential is now emerging in a striking way. "Although Exxon's quarter was impacted by some downtime, Shell's cash flow is now catching up to Exxon's in absolute terms," says Edward Westlake, head of oil research at Credit Suisse.

Shell generated $25 billion of operating cash flow, before working capital movements, in the first half, not far off Exxon's $29 billion. [Yes, less cap-ex means more cash flow—duh!] What's more, Mr. Westlake points out, some major Shell projects, built during that earlier spending spree, have barely started producing. Shell expects its QatarGas 4 and Pearl gas-to-liquids operations in the Middle East to generate $4.5 billion of annual cash flow when fully up and running at a $70-a-barrel oil-price assumption [#msg-61293785].

More than accounting earnings, cash flow provides the building blocks of valuation. Despite the catch-up going on, though, Shell's market cap of $239 billion is only 57% that of Exxon's. [The proper valuation comparison is between the two companies’ enterprise values, not their market caps.] Having put in the hard work, the Anglo-Dutch oil company deserves more recognition than that.‹

[DewDiligence]

Petronas, Shell ink $12B enhanced-recovery deal for Malaysian oilfields:

http://online.wsj.com/article/SB10001424052970204224604577031131438906276.html

Petronas said it signed a deal with Shell for two 30-year production-sharing contracts under which the companies will employ enhanced oil recovery methods at oilfields offshore Sarawak and Sabah states in East Malaysia. They will also develop nine oil fields in the Baram Delta offshore Sarawak and four in the North Sabah development area.

The two projects together may yield an additional 90,000 barrels to 100,000 barrels a day and could be the largest offshore enhanced oil recovery development in the world.

[DewDiligence]

Why doesn’t Shell repurchase shares as aggressively as, say, XOM?
One reason is that corporate tax rules in the Netherlands, which
govern Shell’s Class-A shares (ticker; RDS-A), do not permit buybacks,
so Shell can repurchase only the class-B shares (ticker RDS-B), which
are governed by UK tax rules. On the 4Q11 CC, CEO Peter Voser said
Shell wants to fix this problem and create a single class of shareholders,
but it has encountered pushback from Dutch authorities.

http://www.bloomberg.com/news/2012-02-02/shell-is-working-on-one-share-structure-chief-voser-says-1-.html

›Shell Is Working on One-Share Capital Structure

By Eduard Gismatullin - Feb 2, 2012

Royal Dutch Shell Plc (RDSA), Europe’s largest oil company, is working on a plan to merge its two classes of shares, Chief Executive Officer Peter Voser told analysts today.

Shell created the Class A and Class B shares following the merger of Royal Dutch Petroleum Co. and Shell Transporting & Trading Co. into Royal Dutch Shell Plc The new shares started trading on the London Stock Exchange, Euronext Amsterdam and the New York Stock Exchange as American Depositary Receipts on July 20, 2005. They differ in the way dividends are paid.

“I’m not going to promise anything,” Voser said on a conference call, referring to tax issues that need to be sorted out first. “If it comes, you will see us go very fast into the one-share structure, which then will actually give us all the flexibility which we need.”

Shell investors and analysts today urged Voser to expand a share buyback program to return value at a time when the company is generating additional cash at oil prices over $100 a barrel. The Anglo-Dutch company can only buy back Class B (RDS-B) shares and not Class A shares “as a result of withholding tax restrictions,” Chief Financial Officer Simon Henry said today.

Shell, which will increase its first-quarter dividend to 43 cents from 42 cents announced in the fourth quarter, doesn’t plan to expand its buyback program, Voser said in an interview on Bloomberg Television. “We paid 12 percent of FTSE dividend last year and we are now showing to our shareholders that we are increasing again,” Voser said.‹

[DewDiligence]

Shell Presents Growth Agenda

[This PR was issued concurrently with the 4Q11 financials on 2/2/12. Bottom line: during the 2012-2015 4-year period, Shell expects to generate $175B of cumulative operating cash flow if Brent crude averages $80 and it expects to generate $200B of cumulative operating cash flow if Brent averages $100. (Both forecasts assume the Henry Hub price of NG averages $5, although Shell’s earnings are not strongly linked to this benchmark; almost all of Shell’s industry-leading worldwide LNG output is linked to the spot price of oil.) By comparison, during the 2008-2011 period, Brent averaged $87 and Shell generated $136B of operating cash flow; thus, if Shell’s projections are taken at face value, it will generate 30-50% more cumulative operating cash flow during the next four years than it made during the previous four years, and the increase in cash flow will be about 40% even if the spot price of oil does not increase at all! The driver for this increase in cash flow is that such mega-projects as Pearl GTL and Qatargas 4 have come online and will generate huge cash returns stemming from the large capital investments made in prior years. All told, Shell expects production to increase 25% from 3.2M boe/d in 2011 to 4.0M boe/d in 2017-2018.

Moreover, the proportion of Shell’s upstream activities in the US, Canada, and Australia is increasing relative to non-OECD countries, which means less political risk; 60% of the planned upstream 2012 cap-ex of $24B is in these three countries. (Total 2012 cap-ex is expected to be $30B, i.e. $6B for refining and chemicals.)

Although Shell is limited with respect to share buybacks (#msg-71739798), there is no such limitation with respect the dividend, which was just increased to an annual rate of $3.44 per ADR. At the current share prices for RDS-A and RDS-B, the dividend yield is 4.7%.]

http://finance.yahoo.com/news/Royal-Dutch-Shell-Sets-Out-prnews-2971393053.html?x=0

›LONDON, February 2, 2012 /PRNewswire/--Shell (NYSE: RDS-A) (NYSE:RDS-B) today updated shareholders on progress against its strategic plan to generate profitable growth. In today's volatile economic environment, the company's strategic aim remains to drive forward with its investment programme, to deliver sustainable growth and provide competitive returns to shareholders.

Key highlights:

• Global economy and energy markets likely to see continued high volatility. Shell remains focused on through-cycle investment for sustainable growth.

• Delivery of underlying strategic drivers for 2012 targets established, underpinned by 14 project start-ups 2009-11, and Shell's continuous improvement programmes.

• Shell declared ~$10.5 billion of dividends in 2011 and expects to grow the dividend in 2012, reflecting an improving financial position.

• Net capital investment in 2012 of $30 billion - 80% in Upstream - as Shell invests for a new tranche of growth.

• Measured increase in spending and payout underpinned by a new outlook for cash flow from operations for the period 2012-15 some 30-50% higher than the 2008-11 total [i.e. 30% higher with Brent averaging $80 and 50% higher with Brent averaging $100].

• Growth outlook driven by over 60 new projects and options, maturing ~20 billion boe of new resources potential, including major projects in liquefied natural gas (LNG), deep water, tight gas, liquids-rich shales and traditional plays.

Economic development in non-OECD countries is driving sustained and long term demand growth for all forms of energy. Regulatory and political uncertainties, combined with challenges in debt markets, are adding to price and cost volatility in this long term trend. Shell is investing for sustainable growth through what is likely to remain a highly volatile period in the economy and energy markets. The company's activities provide affordable, safe and reliable energy supplies for our customers, world-wide.

Delivering on targets to 2012

Shell's three-year strategic plan, first outlined in early 2010, was designed to build the foundations for profitable growth for shareholders, by improving near-term competitive performance, and delivering growth to 2012. The main strategic drivers of this plan have now been achieved:

• Performance focus. A substantial corporate reorganization, launched in 2009, simplified the company, reduced costs, and created a platform for faster delivery of our strategy. In addition, we are driving the Downstream portfolio to improve returns and growth potential.

• Cash flow from operations excluding working capital movements was $43 billion in 2011 - reaching the headline target we had set for 2012 - rebalancing the company to surplus cashflow.

• Continuous improvement and capital efficiency are embedded in Shell. Disposals of $17 billion from 2009-11, and $15 billion of acquisitions are repositioning the company for new growth.

• Growth delivery. Shell has started up 14 new projects in 2009-11 - including the world class Pearl gas-to-liquids project in Qatar.

• Shell's oil and gas resources base on stream has increased by 33%, or 3 billion boe, to 12 billion boe between 2009 and 2011. Maintaining a strong project flow, the company is maturing a further 20 billion boe of new resources for future growth.

Our headline proved Reserves Replacement Ratio for the year on an SEC basis is expected to be around 100%. Our Organic Reserves Replacement Ratio, which excludes the impact of oil price movements in the year, acquisitions and divestments, is expected to be around 120%.

Shell's CEO Peter Voser commented: "Shell's strategy is innovative and competitive. Our improving financial position creates an opportunity to increase both our dividends and investment levels. With ramp up now well in hand for near-term growth, I want to move our agenda forward today, with new targets for the company."

"We are delivering our growth plans. Today's update sets a new and sustainable growth agenda for the company. We declared over $10 billion of dividends in 2011 and we are expecting to return to dividend growth for 2012. This reflects our confidence that there is more to come from Shell. "

Setting out new priorities

Voser commented: "We have worked hard to generate a strong pipeline of investment opportunities for Shell, and we put the emphasis firmly on a competitive financial performance. Shell's investment programmes create cashflow growth, which in turn funds our dividends. All of this is supported by efficiency gains from our continuous improvement programmes, where the opportunity set runs to billions of dollars for Shell."

• Net capital investment will be some $30 billion in 2012, with over ~80% Upstream, of which 60% will be in North America and Australia. We continue to mature further development opportunities, with Final Investment Decision on 17 new projects in 2010-11. In 2011, the company has built new positions including Iraq gas, Asia Pacific LNG, liquids-rich shales, and new exploration acreage in 10 countries. This portfolio growth supports our increased investment program and updated growth outlook.

• Our cash flow from operations for 2008-11 was $136 billion, excluding working capital movements. Cash flow from operations should be some 30-50% higher for 2012-15 [see clarification in the prologue of this post].

• Capital efficiency is a key part of Shell's strategy. Divestments are expected to be $2-3 billion in 2012, with $17 billion of asset sales completed in 2009-11.

• In Upstream, the company expects some 250,000 boe/d of asset sales and licence expiries over the 2012-17 timeframe. Assuming these impacts play out, oil & gas production should average some 4 million boe/d in 2017-18, an increase of some 25% from 2011 levels of 3.2 million boe/d.

Growth investment

The key investment themes that underpin this profitable growth include over 60 new projects and options, which should unlock oil & gas resources potential of over 20 billion boe.

• Exploration. We continue to balance exploration drilling in established basins, with selective expansion into frontier acreage, and new plays such as liquids-rich shales. Our exploration spending increased by some 30% to $3.6 billion in 2011, excluding acreage purchases, and should increase a further 35% in 2012 to some $5 billion.

• Traditional developments in Shell's heartlands will see $6 billion of 2012 investment. This includes extending the life of Shell's mature heartland positions such as the UK North Sea and South East Asia. Around $3 billion of investment in this category will be in countries with large undeveloped resources positions - Nigeria, Kazakhstan and Iraq.

• Integrated gas. Shell has ~8 mtpa of LNG capacity under construction - all in Australia - an increase of ~40% over today's position, with at least $5 billion of capital investment planned for 2012. In addition, Shell has some 15 mtpa of new LNG capacity under study.

• Deep water oil and gas spending in 2012 of some $4 billion, with 250,000 boe/d under construction, in 7 projects spanning the Gulf of Mexico, Brazil and Malaysia.

• Tight gas and liquids-rich shales. Shell continues to build a world-wide portfolio in these new plays, with 50,000 square kilometers in total, including an increase of 12,000 square kilometers in 2011 in liquids-rich plays. We allocate capital to these plays on a short-term basis with a high degree of flexibility, driven by economics and affordability. [Translation: Shell will not overspend on development of US shale projects that are light on liquids.] Some $4 billion of world-wide development investment is planned for 2012, focusing on production from the lowest cost gas positions, and growing our liquids production. Production from liquids-rich shales has the potential to reach some 250,000 boe/d in 2017.

• In heavy oil world-wide, we are planning for $2 billion of 2012 spending, covering EOR, mining and upgrading activities. In Canada, Shell is investing in a series of debottlenecking projects in oil sands mining, which will add ~50,000 b/d by 2020. We expect to take final investment decision on a 1.1 mtpa carbon capture and storage project - Quest - in 2012.

• We continue to focus on operational excellence and selective growth in Downstream, with $6 billion investment planned for 2012. Commissioning is underway at the 325,000 b/d Port Arthur refinery expansion project, creating one of the largest refineries in the United States, at some 600,000 b/d. [This project is owned by a JV rather than by Shell directly—I’m not sure what the equity stake is.] Shell is also looking at new manufacturing capacity options in North America, in Qatar and in China, as well as selective growth in marketing activities, and continued momentum in Brazil biofuels.

Outlook assumes $80-100 Brent, improved North America gas [$5 Henry Hub, according to the 4Q11] and Downstream environment from 2011, and excludes working-capital movements [as noted in the prologue pf this post].

Resources: Our use of the term "resources" in this press release includes quantities of oil and gas not yet classified as SEC proved oil and gas reserves or SEC proven mining reserves. Resources are consistent with the Society of Petroleum Engineers 2P and 2C definitions.‹