Shell posts lowest annual profit of $4.8 billion in 2020
Royal Dutch Shell insists it came out of 2020 with a stronger balance sheet and operational resilience but the impact of tumbling oil prices and the global pandemic led to a $4.8 billion annual loss, a fall of 71% and its lowest in 16 years.
Cash capex reduced to $18 billion in 2020, down $6 billion year-on-year, while underlying opex was down $4 billion to $33 billion. Under IFRS earnings, net loss was almost $21.7 billion and net debt dropped $4 billion to $75 billion - the long-term net debt goal is to reduce this figure to $65 billion.
CEO Ben van Beurden said it is committed to a progressive dividend policy and expects to grow US dollar dividend per share by around 4% from Q1 this year. For the three months to December, the oil major's net income dropped to $393 million while net debt increased by $1.9 billion to $75.4 billion, impacted by reduced cashflow.
The outlook for key sectors in Q1 is as follows:
Integrated gas and new energies
Production: 900 - 950 thousand boe/d
Liquefaction volumes: 8.0 - 8.6 million tonnes
Production: 2,400 - 2,600 thousand boe/d
Sales volumes: 4,000 - 5,000 thousand b/d
Refinery utilisation: 73% - 81%
Sales volumes: 3,600 - 3,900 thousand tonnes
Manufacturing plant utilisation: 80% - 88%
Adjusted Earnings: net expense of $2,400 - $2,800 million for the full year 2021. This excludes the impact of currency exchange rate effects
During Q4, QGC Common Facilities Company, a wholly-owned subsidiary of Shell, agreed to the sale of a 26.25% interest in the Queensland Curtis LNG Common Facilities to Global Infrastructure Partners Australia for US$2.5 billion. The transaction is subject to regulatory approval in Australia and customary conditions and is expected to complete in the first half of 2021.
In January, Shell completed the sale of its 30% interest in Oil Mining Lease 17 in the Eastern Niger Delta, and associated infrastructure, to TNOG Oil and Gas Limited, a related company of Heirs Holdings Limited and Transnational Corporation of Nigeria Plc, for a consideration of $533 million. A total of $453 million was paid by completion with the balance to be paid over an agreed period.
The company recently bought Ubitricity for an undisclosed fee, signalling its acceleration into the EV market as it strives to be net zero by 2050 (click here).
Analysts' webcast summary
On Thursday afternoon, CEO Van Beurden and CFO Jessica Uhl hosted a 53-minute webcast for analysts, covering a range of topics.
Addressing the key $65 billion debt target "milestone", Uhl highlighted the $34 billion in cashflow from operations last year in a weak trading environment of $42bpd; the company's active divestment programme; and the two recent deals which will generate $3 billion. "We hope that cash will come in over the first half of 2021," she said, adding that its Capex will be in the $19-22 billion range.
Production was impacted by OPEC+ and COVID, which impacted operations and pricing. "All three of those factors were in play in 2020," she said. "In an extraordinarily challenging year, across the board, we improved our balance sheet - net debt was down $4 billion which speaks to the resilience of the company and quality of the operations. Shell is in very good shape and set up to manage uncertainty and hopefully, help fuel the recovery in 2021."
Upstream accounts for around a third of its cashflow last year, which will not only fund shareholder distributions but the energy transition in future, she added. Shell will give more details about its low-carbon plans in its Strategy Day on February 11.
"CCS is not only essential for decarbonising our own assets, but increasingly it will be a business model, almost like turning energy provision into a service," said Van Beurden.
Chemicals, while undergoing a "very steady decline" in margins over 2019/20, has significantly turned a corner. "That's good news because quite often chemical demand is often a tell-tale sign for how the economy is behaving," he added.
While Netherlands, Germany and UK have seen suppressed demand, China is recording growth year-on-year. "I imagine in the course of 2021, some of that demand will come back, and a signficant part of that will be down to aviation," he said.
In response to Shell's inclusion on S&P Global Ratings's recent CreditWatch list (click here), Van Beurden said: "We don't run the company on credit ratings, but with an intent to have a certain balance sheet strength, and we have a number of metrics."
It's been a torrid time for oil majors, with bp posting an $18.1 billion annual loss in 2020 (click here).
Magellan, Enterprise and ICE unveil new futures contract
The Midland WTI American Gulf Coast contract is being launched in response to market interest for a Houston-based index with greater scale, flow assurance and price transparency. It will use the capabilities and global reach of ICE’s trading platform and is due to be launched by ICE by early 2022, subject to regulatory approval.
The quality specifications of the new futures contract will be consistent with a West Texas Intermediate crude oil originating from the Permian Basin with common delivery options at either the Magellan East Houston terminal or the Enterprise Crude Houston terminal. In support of this new futures contract, Magellan and Enterprise anticipate discontinuing their existing provisions for delivery services under the current futures contracts deliverable at each terminal once the new contract receives regulatory approval and is finalised.
“Magellan is pleased to join forces with Enterprise and ICE to offer this leading-edge joint futures contract,” said Aaron Milford, Magellan’s chief operating officer. “The new contract improves the transparency, flexibility and marketability of Midland WTI crude oil for Gulf Coast and export customers while maintaining industry-recognized quality and consistency.”
Harold Hamm, Chairman of the Board of Continental Resources and Founding Member of the American Gulf Coast Select Best Practices Task Force Association said on April 20 last year, when the Cushing, Oklahoma WTI contract traded down to -$38, it was a wake-up call to the oil industry that the storage constraints and landlocked location of the Cushing contract could no longer be ignored.
"I started the American Gulf Coast Select Best Practices Task Force to develop specifications for a new US light sweet crude oil price benchmark in the American Gulf Coast, and to advocate for its implementation and adoption as the main pricing point for the US oil markets," he said.
"We think a futures contract in the most interconnected market center in the country, with a widely accepted quality spec, which settles with guaranteed delivery of crude oil is an important new alternative for the industry. The task force has worked tirelessly to create a marker with transparency and liquidity that is waterborne for this modern era. The Midland WTI American Gulf Coast futures contract ... is a huge step forward for the industry and goes a long way to accomplishing the mission on which the task force has been working.”
Brent Secrest, Executive Vice President and Chief Commercial Officer of Enterprise’s general partner, said: “We are excited about this new crude oil futures contract, which features the combined strength of two extensive and complementary networks of midstream assets with a world-class trading platform to provide customers with greater supply reliability, flexibility and price transparency.
As the market hub for Permian Basin production, Houston represents the most logical choice for a new futures contract. Between Magellan and Enterprise, we offer access to virtually all of the export capacity in the Houston region, redundant connectivity to all area refineries, a robust Gulf Coast storage position and interconnects to all of the relevant supply pipelines, including those owned by third parties.”
Jeff Barbuto, Global Head of Oil Markets at ICE, said combining efforts with Magellan and Enterprise to establish a benchmark for pricing Midland quality WTI on the Gulf Coast allows it to offer the industry a futures contract with over four million bpd of supply capacity from Midland into Houston, access to both domestic and foreign demand, and nearly 60 million barrels of storage capacity in the Magellan and Enterprise systems.
"Traded on the same global platform as ICE Brent, Murban and Platts Dubai Crude Oil futures contracts, the new Midland WTI American Gulf Coast contract can also offer significant capital efficiencies to the industry and provide industry-leading quality that buyers have grown accustomed to in the Houston market," he said.
According to EIA forecasts, global consumption of petroleum and liquid fuels will average 97.7 million bpd for all of 2021, a 5.4 million bpd increase from 2020. US crude oil production averaged 11.2 million bpd in March, up 1.4 million on February.