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).
Hydrogen Map shows 57 projects are operational globally
Currently there are 57 projects operational and a further 58 will be in development by the end of 2021. Construction of another 92 are slated to begin in the next decade.
Western Europe and Asia Pacific, which account for more than 83% of known low-carbon hydrogen projects, are driving growth, but US projects are rising. The US is well positioned to lead the green hydrogen economy due to the abundant, low cost renewable energy sources needed to produce it, such as wind, solar, hydropower and nuclear, according to McKinsey.
A hydrogen production facility being built at the Tabangao refinery in Batangas, Philippines is slated to be the first to generate blue hydrogen, in which hydrogen is produced using fossil-fueled sources but the resulting carbon emissions are captured, stored or reused.
"Low carbon hydrogen and ammonia production is the key to decarbonising the hard-to-decarbonise sectors like transportation, industry and buildings”, said Pillsbury energy partner and Deputy Energy Industry Group leader Elina Teplinsky.
"This map will be a helpful tool for a broad audience of policy makers, industry participants and investors, sustainability analysts, advocates and journalists tracking the development of low-carbon hydrogen projects and encourage dialogue between those parties to further accelerate adoption of this transformational technology."
"With governments and enterprises worldwide increasingly prioritising decarbonisation goals, we are laser-focused on helping clients capitalise on the enormous opportunities that the ongoing energy transition presents,” said partner Sheila Harvey, who serves as firm-wide Energy Industry Group leader at Pillsbury and co-leads the firm’s Hydrogen practice.
Hydrogen practice group co-leader Mona Dajani, who heads Energy & Infrastructure Projects and Renewable Energy teams, said energy demand is driving significant innovation in the hydrogen space.
"Green hydrogen projects, which combine renewable power sources with hydrogen production, are unlocking new possibilities for regions previously constrained by weak grid connections and transmission bottlenecks and marking a crucial step in the development of the green hydrogen business case," she said.
New Australian clean energy storage startup Endua aims to build hydrogen-powered energy storage and deliver sustainable, reliable and affordable power.
Endua is backed by $5 million in funding, technology and industry expertise from CSIRO, Australia’s national science agency; Main Sequence, the deep tech investment fund founded by CSIRO; and Ampol, the country’s largest fuel network.