Shell Share Discussion Threads

[maywillow] 19/12/2018 18:31

Shell And BP Underwhelm, Despite Wild Oil Price Swings
By CMC Markets (Michael Hewson)Stock Markets7 hours ago (Dec 19, 2018 11:01)

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The rebound in oil prices that started way back at the beginning of 2016, finally ran out of steam a couple of months ago when prices hit a four year peak just shy of $87 a barrel in October with many forecasts predicting a move towards $100 a barrel

The main driver behind the summer move above $72 a barrel, and then $80 was the unilateral US decision to reimpose sanctions on Iran for what US President Trump called its “threatening and destabilising behaviour” in an attempt to redraft the nuclear deal which he described as the “worst deal ever”

The controversial move which invited a storm of criticism from US allies did prompt the US administration to delay the implementation of the sanctions with a deadline of 3rd November for countries to comply with the order not to do business with the Iranian regime, where output was estimated at about 3m barrels a day.

In an attempt to mitigate the damage and stem the upward move in prices the US President ramped up pressure on OPEC to increase production to compensate for the loss of Iranian output.

As a result OPEC was able to produce 32.9m barrels in October, while non OPEC members managed to produce 18.25m barrels. US output also rose to in excess of 7m barrels a day, a record, and while the Khashoggi affair did prompt concerns that Saudi might weaponise its position as a swing producer, such a move would have destroyed any credibility it might have as a stable actor.

Such a move would in all probability destabilised the oil market, as well as raising the prospect of a global recession if prices did spike up to $100 a barrel and would not have been well received by its peers, who rely on sustaining the balance of supply and demand so as not to slow the global economy and kill demand.

As it is there has already been rising evidence of a global slowdown in demand as inventory build ups have risen. US inventories showed early signs of that at through October and November with consistently above expectation rises, averaging over 5m barrels a week.

This build-up in inventory levels at precisely the time that oil prices pushed above their May peaks appears to have also coincided in a slowdown in economic activity levels. While some have blamed concerns about trade war escalations, and the imposition of tariffs, it also can’t be a coincidence that, as can be seen from the chart below, the move through the summer peaks, which pushed the rise in oil prices this year through the 15% level, probably also helped prompt a Q3 slowdown in demand.

Unsurprisingly the sharp decline in oil prices has also hit the share prices of the main oil companies which have spent most of this year underperforming relative to the wider benchmark, despite posting rising revenues and profits, as they benefit from higher margins in both downstream and upstream businesses.

Both Royal Dutch Shell (LON:RDSa) and BP (LON:BP) have disappointed this year, though the performance over a two year period is slightly more positive they still aren’t ripping up any trees.

On a two year time horizon both Shell and BP are just about in the black but its single digits in pure percentage terms, though that doesn’t include reinvested dividends.

BP ChartBP Chart

At its last set of results, for Q3 Shell showed recorded it’s best ever level of cash flow while returning its highest level of profits for four years.

Higher oil and gas prices helped boost margins in the first part of the year, while the company has also been buying back its shares as it looks to boost shareholder returns after its purchase of BG Group.

The biggest concern would appear to be around declining natural gas production which the company said it expected to remain subdued, in the short term, though it is expected to improve in the longer term.

The recent sharp fall in oil prices might crimp its oil based revenues for Q4, which may help explain some of the underperformance, but overall as long as oil prices don’t fall off a cliff it is hard to see too much in the way of downside.

BP shares also underperformed relative to the oil price when it was rising, and could well struggle to finish the year in positive territory. Unlike Shell they do have the legacy of the 2010 Deepwater Horizon Gulf oil spill hanging over them, though on the plus side additional provisions are now much less than they were a few years ago.

The shares also managed to hit their highest levels since 2010 earlier this year touching 600p before briefly slipping back. In October the company reported its highest quarterly refining ability in 15 years, while also beating profit expectations for its Q3. Its net profit came in at $3.8bn, well above expectations of $3bn, while profit for the year to date was $9.2bn, well over the $4bn for the same period a year ago.

The boost to profits came about as a result of the early delivery of expansion projects in the Gulf of Mexico and Australia, which boosted overall output.

The $10bn acquisition from BHP for its US shale assets is expected to complete by the end of this month with the entire transaction expected to be funded by the proceeds of cash generation, assuming oil prices had remained at their summer levels.

The subsequent decline in oil prices since October has blown a hole in that calculation forcing BP to launch a sale of $3bn worth of US onshore oil and gas assets, to fill the hole created by a 30% decline in oil prices, and in so doing raises further questions about the company’s ability to continue reducing the level of its debt.

Net debt still remains quite high at $39.2bn, but it is lower from a year ago when it was $39.8bn, putting its debt gearing at 27.5%. The company said it still remains on course to meet its 2018 divestment target of $3bn, which it says it will use to reduce its net debt figure further, while at the same time keeping its gearing ratio between 20-30%.

The company was more cautious on the remainder of the year, saying it expected production to be higher than Q3 with the integration of BHP, but for margins to be slightly lower. The wider worry remains its debt levels given the recent sharp selloff in the oil price, which is likely to have hit its margins in the current quarter, while the rise in US rates in the last 12 months won’t have helped in terms of its debt costs.

The biggest problems the companies are set to face is the move away from oil consumption towards renewables and biofuels as measures to deal with climate change become more mainstream.

With the Norway sovereign wealth fund announcing it would be pulling back from investing in oil and gas assets in the coming years the big task for oil companies in the coming years will be to reduce their reliance on their traditional means of income and invest in renewables like wind and solar energy.

BP is already leaning in this direction after investing $200m in Europe’s largest solar power provider, Lightsource, which is developing solar projects in Asia, the US and Europe. This project appears to be going in the right direction with new contracts being signed across the US this year, in California and New Mexico, as well as Brazil.

The company BP Lightsource has also announced its intention to use thousands of solar panels near Sedgefield County Durham to power 13k homes in the North East of England.

Royal Dutch Shell appears to be leaning in a slightly different direction after it agreed to buy NewMotion, an electric vehicle charging company last year, in an attempt to roll out charging point technology to its forecourts.

The company is also investing in other alternative fuels including liquefied petroleum gas and hydrogen on top of its $50bn investment in liquefied natural gas when it bought BG Group in 2015.

As we look ahead to 2019 and the prospect for the UK’s two biggest dividend payers the outlook continues to look positive despite the shares of both being close to multi year highs.

Whether or not we see further gains will largely depend on firstly whether the current levels seen in the oil price so far this year are sustained, but also in how successful both companies are in diversifying away from their traditional business models.

Both have made decent progress in terms of their gas businesses and in cutting costs but more progress needs to be made, with gas making up about 50% of BP’s business now.

The biggest concern remains around BP, in that its high debt levels and wafer thin dividend cover still make it vulnerable to an economic slowdown or a drop in demand. In its favour, breakeven costs are lower than a year ago, but a sustained move below $50 a barrel, would raise further concerns, about the company’s ability to increase returns to shareholders.

[maywillow] 19/12/2018 18:23

Is Shell About to Spend $8 Billion to Double Its Permian Basin Acreage?

By Paul Ausick December 19, 2018 9:40 am EST
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According to a Bloomberg News report Tuesday, Royal Dutch Shell PLC (NYSE: RDS-A) is negotiating to buy privately held Endeavor Energy Resources for about $8 billion. If the deal is consummated, Shell would acquire drilling rights to around 329,000 acres in the Permian Basin’s Midland Basin.

Rumors surfaced late last month that Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX) and ConocoPhillips (NYSE: COP) also were considering making an offer for Endeavor, but Bloomberg cited a source who said the three have lost interest in doing so.

At $8 billion, Endeavor appears to be a bargain. Earlier discussions had suggested a price of $15 billion for the firm owned by Texas oilman Autry Stephens and his family. Collapsing oil prices have reduced Endeavor’s value, and it’s not clear whether the 80-year-old Stephens would be willing to part with the firm he built from scratch for the lower amount.

Stephens also reportedly wants to retain a substantial portion of the mineral rights to Endeavor’s acreage that would yield royalty payments when the acreage is drilled. Less than 2% of Endeavor’s Midland acres have been developed using the horizontal drilling techniques that have transformed the United States into world’s top producer of crude.

In August, Endeavor reported second-quarter daily net production of 64,300 barrels of oil equivalent a day, of which 71% was oil, a year-over-year increase of 64%. Lease operating expenses dropped to $10.84 per barrel, a 19% improvement from the prior year.

Exxon, Chevron and Shell all have planted stakes firmly in the Permian Basin and, according to industry analysts at Rystad Energy, these supermajor oil companies could lift their Permian production by 300% by 2030. All three have invested heavily in drilling in the basin, and all three have had major success. Exxon and Chevron doubled their production in the first nine months of this year, and Shell lifted its production by 80% in the same period. Together, these three giants account for 11% of all unconventional (horizontal drilling and fracking) production in the Permian.

The big advantages that these supermajors have are efficient cost structures and economies of scale that enable them to make a profit even when crude oil prices are low. And where smaller producers have to high-grade their drilling by poking holes in locations that promise to yield the most oil, the big boys have high-graded less than half their Permian wells.

Besides Stephens’s desire to hold onto mineral rights for the Midland acres, there are a couple of other things that give Shell pause. The company is still paying off debt from its $50 billion acquisition of BG Group and already holds 280,000 acres in the Permian through a joint venture with Anadarko Petroleum Corp. (NYSE: APC).

According to the company’s fact sheet, Permian production totaled around 39,000 gross barrels a day. The only other North American shale play the company owns is its 225,000 net-acres Fox Creek project in the Duvernay play of Alberta. The company produces some 119,000 barrels a day at Fox Creek. Adding more than 64,000 Endeavor barrels would raise production by around 40%.

This would be a very good pickup for Shell, or any other of the major oil companies. The trick is going to be prying Endeavor out of the hands of Autry Stephens.

[waldron] 19/12/2018 17:09

Total
46.83 +0.16%


Engie
12.795 +0.99%

Orange
14.355 +0.91%

FTSE 100
6,765.94 +0.96%
Dow Jones
23,844.44 +0.71%
CAC 40
4,777.45 +0.49%


WTI 47.9100 +4.47%
BRENT 57.5840 +2.91%
Gasoline NYMEX 1.38 +2.83%
Natural Gas NYMEX 3.64 -5.08%



BP
502.5 +1.05%


Shell A
2,296.5 +1.32%


Shell B
2,318 +1.60%

[zho] 19/12/2018 15:51

Futures rose as much as 2.5 percent in New York on Wednesday, halting the deepest three-day slump since 2016. Saudi Energy Minister Khalid Al-Falih said he’s sure a production accord signed earlier this month will be extended in April. Analysts in a Bloomberg survey, meanwhile, predicted a third straight decrease for American crude stockpiles ahead of a government report Wednesday.

[montyhedge] 19/12/2018 15:18

Must admit look good value and I have been a bear on Shell.

[florenceorbis] 19/12/2018 13:36

Does Royal Dutch Shell Plc have share price recovery potential?
Could Royal Dutch Shell Plc (LON:RDSB) (RDSB.L) deliver improving share price performance?
December 19, 2018 Robert Stephens Shell (LON:RDSB)




Royal Dutch Shell Plc
Royal Dutch Shell Plc

It’s been a tough few months for the Royal Dutch Shell Plc (LON:RDSB) (RDSB.L) share price. It has fallen by 15% since the start of October.

While that may sound disappointing, the oil price is down by twice that amount during the same time period. Since the company is highly dependent on the price of oil when it comes to its own profitability, I think that it could have been worse for the FTSE 100 oil major.

In the near term, it wouldn’t surprise me if the company’s shares come under further pressure. They could be hit by an oil price that may move lower. Investors appear to be unsure about the demand growth prospects for oil, with uncertainty surrounding the world economy’s outlook having the potential to continue.

At the same time, supply growth may be more robust than expected. The waivers placed on Iranian sanctions may last for longer than the initial six-month period, and this could lead to a higher level of supply than was previous expected.

As a result, the Shell share price may experience continued challenges in the short run. In the long run, though, I’m optimistic about its potential to deliver a successful recovery. I feel that the company has a sound strategy which is focused on improving its balance sheet strength through asset disposals and reducing leverage. This could create a stronger business which is able to generate improving financial performance in the long term.

Further, Shell is due to record rising free cash flow over the medium term. This may help it to grow dividends at a time when it has a yield of 6.3%. As a result, it could become an increasingly appealing income stock over the long run in my opinion, and this may prompt investors to become more bullish after what has been a testing time in recent months.




About Robert Stephens 5177 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [e-mail] or use one of the other contact methods available on the 'Contact Us' page

[ariane] 19/12/2018 08:28

19 Dec 2018 | 03:38 UTC Singapore

Crude oil futures recover from overnight fall; markets await EIA data

Author Avantika Ramesh Editor Geetha Narayanasamy Commodity Oil

Singapore — Crude oil futures moved higher during mid-morning trade in Asia Wednesday, recovering from an overnight slump that saw prices plunge by more than $3/b, amid mild bargain hunting. The market is awaiting the release of US crude stocks data later Wednesday for price direction.
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At 11: 10 am Singapore time (0310 GMT), ICE February Brent crude futures were up 35 cents/b (0.62%) from Tuesday's settle at $56.61/b, while the NYMEX January light sweet crude contract moved 17 cents/b (0.37%) higher at $46.41/b.

"Prices are consolidating this morning amid some bargain hunting after the crash last night," Benjamin Lu, investment analyst at Phillips Futures, said.

"Overall sentiment, however, remains weak. US crude stock numbers today [Wednesday] will provide some direction," he added.

Both benchmark contracts on Tuesday touched fresh one-year lows, pressured by a poor economic outlook and growing supply concerns, analysts said.

"The continuing sell-off on the world's stock markets is clearly fueling fears of an economic slowdown next year, which would also have an impact on oil demand," Commerzbank analysts said in a note.

"Economic concerns in China and around the world weighed on the crude oil market," ANZ analysts said in a note Wednesday.

Chinese President Xi Jinping on Tuesday addressed his nation, calling for the implementation of reforms on Beijing's terms.

"There is no text book that can provide a golden rule, and there is no instructor who can boss around the Chinese people," Xi said at Beijing's Great Hall of the People.

This comes at a time of heightened tensions between the US and China on their trade policy, with a 90-day truce period currently in effect.

"Xi's speech at the start of an economic summit contained none of the new economic policies the market was hoping for. It also had a provocative tone, stoking fears that the negotiations in trade talks between the US and China may struggle to find a common ground," ANZ analysts said.

Furthermore, analyst reports quoting the American Petroleum Institute data released Tuesday showed that US crude stocks rose 3.45 million barrels for the week ended December 14.

Analysts surveyed Monday by S&P Global Platts expect US commercial crude stocks to have fallen 3 million barrels for the same period.

Market participants would be looking out for the official report from the US Energy Information Administration on US crude inventory data due for release later Wednesday.

The report would be closely watched as the EIA on Monday increased its projection for US shale production in January, to rise by 134,000 b/d to 8.166 million b/d, setting a bearish tone for prices, analysts said.

Elsewhere, Saudi Arabia's crude exports surged to a 21-month high of 7.701 million b/d in October, latest figures from the Joint Organizations Data Initiative showed.

The October figure was up 268,000 b/d from September and the highest since 7.713 million b/d in January 2017, when OPEC/non- OPEC cuts came into force.

The data comes at a time when investors are looking for more clarity on the announced 1.2 million b/d production cut by OPEC and its allies.

As of 0310 GMT, the US Dollar Index was down 0.21% at 96.34.

--Avantika Ramesh, [e-mail]

--Edited by Geetha Narayanasamy, [e-mail]

[essentialinvestor] 19/12/2018 08:26

It will take a hell of a UKX plunge to get to £20.

[sogoesit] 19/12/2018 08:25

Post 4235 mentioned £20 and the Santa Crash may give that on capitulation.
That would mean a dividend yield of about 7.5%.
When is too cheap cheap enough to turn this around? Oil price at $45?

About dividends: when I look back at some long-term holdings (of this and other stocks) I have sold over the years there has been an average of nearly 50% of the return coming from dividends.

[ps0u3165] 19/12/2018 07:51

Shell is in talks to acquire Endeavor Energy Resources for US$8 billion, Bloomberg reports, citing sources close to the negotiations. Earlier, Shell was not the only suitor, with Exxon, Conoco, and Chevron also reportedly interested in the acquisition but not enough to pursue it.

[gswredland] 19/12/2018 07:29

Let’s hope Trump ramps up shale oil production and this should fall nicely to add below well below 2000
Fantastic dividend

[fjgooner] 19/12/2018 01:30

@EJ,

I feel your pain - I had a couple of harsh resets myself in the distant past but these serve as valuable learning experiences.

The best lesson taught me to get to really know the sector in which a business operates before committing serious funds. Of course, this does not eliminate all risks nor smooth out short-cycle perturbations like the recent price graph of crude that today has brought 2018Q4 Brent average price down to $70.70.

But it helps.

It seems that we share similar views on a dislike of scrip and of core capital preservation as a primary goal when drawing down income.

I wish you well with your retirement plans.

As it happens, I am finally concluding my primary career next month and will, thereafter, have more time to commit to an active management of my investments.

And it will, of course, be nice to have more time in the day to enjoy all the good things in life.

All the best,

FJ

[buywell3] 18/12/2018 23:19

Knowing where OIL is going is KEY


From the PMO thread


buywell3 - 05 Jun 2017 - 12:03:51 - 28214 of 41933 Premier - Charts and All - PMO

If Trump ramps up Shale oil production any further WTIC looks set to test $45 within a couple of months






And voila

[essentialinvestor] 18/12/2018 22:10

SP may stop defying the gravity of lower oil tomorrow.
WTI sub 46.

[fjgooner] 18/12/2018 21:16

Same here. I currently reinvest 100% of my Shell dividends back in each year across my SIPP and ISA. A nice, completely tax free method of growing a portfolio position.

[tornado12] 18/12/2018 20:23

& my divi payment direct into repurchase of Shell shares in my ISA. So my Shell stock is growing nicely :-))

[ariane] 18/12/2018 19:14

TOMORROW



DIVI Payment date December 19, 2018

[essentialinvestor] 18/12/2018 19:11

Had a small amount before the close, surprised we are still at these levels
with the oil price plunge. FX currently supportive re the dividend.