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Posts from ‘April, 2011’

Karoo group files charge over fracking ad

Apr 29th, 2011
by John Donovan.
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Complaint over a Shell advert which tries to allay public fears about its fracking exploration technique

CHANTELLE BENJAMIN: Published: 2011/04/29 06:40:25 AM

A GROUP of Karoo residents has accused oil company Royal Dutch Shell of being “untruthful and misleading” and has lodged a complaint over an advert which tries to allay public fears about its fracking exploration technique .

The complaint by specialist energy attorneys Havemann Inc on behalf of Treasure the Karoo Action Group is over an advert in the Sunday Times and the Cape Times this month headed “Dialogue on the Karoo”, which they allege aims to mislead readers.

Shell is just one of several oil and gas companies that have applied to explore the Karoo’s shale gas beds to see whether SA has exploitable reserves. The applications have Karoo residents and some scientists up in arms, arguing that the US, UK, Canada and France have all imposed moratoriums on fracking until more is known about its effects on the environment and on communities. They argue that the Karoo is already a sensitive area.

The complaint said Shell spoke of “increased awareness of the benefits of shale gas” when in fact “heightened interest in exploration of shale gas reserves” has led to “increased domestic and global awareness of the associated environmental and health risks of fracturing and not of any so-called benefits of shale gas”.

Havemann said the advert, which asks why no one has heard of hydraulic fracturing when it has been around for 60 years, can mislead readers into believing that “hydraulic fracturing is a commonplace and generally accepted technique for the exploitation of natural gas, which it is not”.

The action group also objected to claims by Shell that “hydraulic fracturing is used in nearly nine out of 10 natural gas wells”, saying the moratorium in many countries makes this figure unlikely.

The group said the diagram was also misleading as it suggested “multiple layers of steel casing and cement will protect” a wet underground layer of water- bearing permeable rock known as an aquifer when these layers are found at greater depths than indicated — such as 1km to 3km — where there would be no such casing, according to the diagram.

The group says the advert alleges that there is no indication of groundwater contamination, when there are reports available, and makes no reference to surface water contamination.

Kim Bye Bruun, speaking for Shell, said yesterday: “We have been made aware of the complaint lodged with the Advertising Standards Authority and the matter had been referred to our legal specialists for review of the complaint, and a response will be made to the (authority) at the appropriate time.”

In fracking a mix of water, sand and chemicals is injected into a wellbore at high pressure to crack rock, and bring gas to the surface in a liquid from which the gas can be extracted.

At issue is the chemicals used. Shell argues that a “typical fracture treatment uses … between three and 12 additives”. The complaint says research over five years showed “2500 hydraulic fracturing products contained as much as 750 chemicals”.

A copy of the contested advert can be found on bday.co.za.

benjaminc@bdfm.co.za

Photo Credit: Reuters

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Shell scared away by British tax?

Apr 29th, 2011
by John Donovan.
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April 29, 2011

LONDON, April 29 (UPI) — Royal Dutch Shell suggested it might pull out of developments in the North Sea because of a tax increase imposed by the British government, a director said.

British Chancellor of the Exchequer George Osborne imposed a duty on oil and gas producers in an effort to take advantage of massive oil profits reported by international energy companies.

Oil and gas developers posted record first quarter profits as energy prices soar in response to global economic recovery, a weak U.S. dollar and unrest in some of the Middle East’s largest oil-producing nations.

Simon Henry, financial director at Shell, was quoted by London’s Daily Telegraph as saying Osborne’s tax would have “significant impact” on the company’s plans. He added that his company might not move forward with North Sea development because of the tax.

Shell posted $6.9 billion profit for the first quarter of 2010 though production was down modestly compared with the same period last year.

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Shell make £4.1bn…and axe North Sea fields

Apr 29th, 2011
by John Donovan.
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SHELL is slashing investment in the North Sea over a Budget Day tax hike – despite making £1.9million an hour.

The giant yesterday revealed the rise meant it was now “uneconomic” to develop smaller UK oil and gas fields.

Shell’s quarterly profits were up forty per cent and totalled £4.1billion.

Chief finance officer Simon Henry said the group would only invest in two new projects. Other work has gone. He said: “The irony is we were just beginning to look at what opportunities there were in the North Sea again. We hadn’t worked up the projects yet and that work now stops.”

The move threatens hundreds of jobs in the North Sea – and is the latest backlash to the Chancellor’s Budget Day clampdown.

George Osborne raised the tax on North Sea production from 50 to 62 per cent last month to pay for lower fuel duty for Britain’s motorists.

He said it would help fund the penny cut on Budget Day and the scrapping of a fuel tax “escalator”.

The Government is also threatening to cut tax relief on the decommissioning work needed to take rigs apart when oil fields reach the end of their life.

Shell yesterday booked a £660million charge to cover the higher UK tax hit.

But Mr Henry said it would not pass higher costs on at the pump, insisting there was no “linkage”.

The firm put its bumper first quarter results down to the high oil prices and fatter margins in Shell’s refining empire.

Mr Henry insisted it only made a penny from every litre of petrol it sells. And he hinted that pump prices could start to fall, adding: “The oil price is perhaps a little bit higher than the supply-demand position suggests it should be.”

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Shell may have to sell North Sea assets after tax raid

Apr 29th, 2011
by John Donovan.
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Published Date: 29 April 2011
By Martin Flanagan
City editor

ROYAL Dutch Shell warned yesterday that it may have to sell some assets in the North Sea and reduce investment in the region because of the Chancellor’s tax raid and higher industry decommissioning costs in the Budget.
Simon Henry, chief financial officer, revealed that the changes could cost the group $1 billion (£600m) in extra charges, a similar sum to that facing rival BP.

He said that Shell had taken a $60 million hit in the first quarter of this year on the extra tax levy on North Sea production and would face a further $150m impact over the rest of 2011. There will be another $400m charge in 2012.

In addition, reduced tax breaks for decommissioning rigs was likely to lead to another charge of up to $500m.

“It’s a fact of the business we are in. Not just governments but suppliers look for a share of higher revenues,” Henry said.

He added that big Shell interests in the North Sea, such as the Clair and Schiehallion fields to the west of Shetland that are operated by BP, were unlikely to be affected by the tax raid.

But Henry admitted there could be “a significant impact” on other smaller oil projects, some only at the early drawing-board stage, from the changes to the tax regime over decommissioning North Sea infrastructure.

It is estimated that Shell spends about $1.5bn of its $30bn investment budget on its North Sea assets. “By definition, the value of them (the assets] is going down (as a result of the tax hike]”, Henry said. “If it’s worth more to us we keep it, but if there are buyers out there we might consider selling.”

His warning on the affects of the Chancellor’s tax raid came as the company put embattled BP in the shade, with a 30 per cent jump in first-quarter profits to $6.2 billion (£3.8bn] against $4.8bn in the same quarter last year.

Shell said exploration and production profits up 8 per cent at $4.6bn were mainly driven by oil and gas prices up 38 per cent in Q1 compared to the first quarter of 2010.

Brent crude averaged $87 a barrel in the period.

The strong profit performance was despite a 3 per cent fall in output, partly due to the company’s $3.2bn of asset sales in the period.

BP, which has largely completed $30bn of asset sales to help pay for the Gulf of Mexico disaster, saw Q1 output fall 11 per cent.

Shell saw a sharp rebound in the performance of its “downstream” refining and marketing business, where profits more than doubled to $1.65bn.

The group said the division benefited from higher profit margins and higher refinery intake volumes as a result of lower planned and unplanned maintenance work.

Shell, the biggest shipper of liquefied natural gas (LNG), said it had also benefited from higher LNG prices following the Japanese earthquake, with Japan expected to scale back nuclear power in future.

The group’s borrowings-to-shareholders’ funds ratio fell to 14 per cent from 17 per cent, underlining its financial strength.

Shareholders get a maintained divi of 0.42 cents per share.

Shares in Shell closed up 14p at 2322.5p.

Shell chief condemns tax hike as profits surge 30%

Apr 29th, 2011
by John Donovan.
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mark williamson

29 Apr 2011

THE chief financial officer of Royal Dutch Shell has warned , the surprise hike in tax on North Sea profits will hit investment in the area, after the company unveiled a 30% leap in profits on the back of surging oil prices.

Simon Henry said the hike, announced by George Osborne’s had already impacted on planning. and it may result in the company investing much less in future than it would have done.

His criticism comes in the wake of similar warnings from other big firms.

The oil giant achieved earnings of $6.3 billion (£3.8bn), net of one-offs and changes in the value of inventories, compared with $4.8bn (£2.8bn) in the same period last year.

This was powered by a 32% annual increase in the average price of the crude oil Shell sold. But Mr Henry claimed Shell’s 800 petrol stations in the UK make only 1p profit on every litre of fuel they sell.

The profit was stated after charging an additional $60 million (£36m) tax on Shell’s North Sea earnings following the 12 percentage point increase in the tax payable on North Sea earnings announced in the Budget. The company said it expects to charge an additional $150m (£90m) tax on its North Sea profits during the rest of this year and a further $900m (£541m) in 2012, including changes in the tax treatment of decommissioning costs.

Mr Henry said the North Sea remains an important area for Shell in terms of production but added: “The big oil fields are likely to go ahead but others look a lot more challenged,” said Mr Henry, who plays a key part in deciding where Shell deploys its vast capital investment budget around the world.

Mr Henry said Shell was likely to approve investment in the giant Clair and Schiehallion oil fields off Shetland later this year. These are operated by BP, which recorded a 4% fall in profits in the first quarter, to $5.4bn (£3.2bn) net of one-offs. The costs of the disastrous Gulf of Mexico oil spill increased by $400m (£240m) in the quarter, when BP also booked a $683m (£410m) charge in respect of the increase in North Sea taxes.

However, Mr Henry said Shell would stop early stage work on two projects. One involved extracting “tight gas” from dense rocks in the southern North Sea. Shell had also been discussing a project involving hard to produce heavy oil with Statoil.

Regarding these, Mr Henry said: “Work stops, basically”.

Mr Henry said investment in smaller fields and “difficult oil” developments would be most at risk of being cut. This might make it difficult to prolong the life of expensive infrastructure.

Mr Henry said the net effects of the reduction could be profound. “It’s pretty clear that the lifetime of operations will be reduced by around one to two years,” he said.

Mr Henry noted that Shell will be making final investment decisions on 10 giant projects across the world this year. These might underpin earnings well into the future.

In the first quarter Shell started shipping liquefied natural gas from the giant Qatargas 4 project in the Middle East and ramped up production from the Jackpine Mine at the Athabasca Oil Sands Project in Canada.

Production fell by 3% annually in the first quarter, to 3.5m barrels oil equivalent daily, following the sale of non-core assets. Yet output from new fields outweighed the decline in production from existing fields.

Upstream earnings increased by 8% annually, to $4.6bn (£2.7bn). Refining and marketing earnings increased by 112%, to $1.6bn (£961,990m).

In a note to clients, analysts at Evolution Securities wrote: “Royal Dutch Shell’s start-up of major upstream projects should see enhanced contributions from this area and enable RDS to continue to outperform its peers.”

Royal Dutch Shell declared a first-quarter dividend of $0.42 per ordinary share, unchanged from the US dollar dividend for the same period in 2010.

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BP should look to Anglo-Dutch rival Shell to help refine the way forward

Apr 29th, 2011
by John Donovan.
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One of the most striking features of the oil industry in recent times has been the divergent fortunes of Royal Dutch Shell and BP.

BP has well-publicised problems that explain its recent under-performance, such as uncertainty over its future in Russia and the shock of last year’s Deepwater Horizon drilling rig explosion in the Gulf of Mexico’s Macondo area, which left 11 workers dead. Photo: REUTERS

Damian Reece
By Damian Reece, Head of Business: 29n April 2011

The past two years has seen Shell outperform the All-Share index by 7pc, while BP has under-performed by 58pc.

Results on Thursday from Shell once again underlined the companies’ differences, such as profitability and prospects, which are driving investor sentiment.

BP has well-publicised problems that explain its recent under-performance, such as uncertainty over its future in Russia and the shock of last year’s Deepwater Horizon drilling rig explosion in the Gulf of Mexico’s Macondo area, which left 11 workers dead.

Going further back, under Lord Browne’s regime we had his own troubled exit, the Texas City refinery blast, the Prudhoe Bay spill, problems in the Gulf’s Thunder Horse field and price-fixing allegations in New York.

If you consider the Texas City blast, which killed 15, was back in August 2005, BP has been beset by serious problems for nearly six years. This begs the question, can BP ever really change?

However unpalatable it might be, chief executive Bob Dudley could look across at his age-old rival, Shell, for the answer. Shell had its own Macondo moment back in 2004, with its reserves scandal. For nearly 10 years prior to that, Shell had been trying to change its culture, a process that had been largely ineffective.

Since the reserves scandal, under chief executives Jeroen van der Veer and latterly Peter Voser, it has changed tack, focusing on more investment upstream in exploration and production, more investment in OECD countries to reduce political risk and to replace its declining heart lands, more investment in gas and more large projects.

It has developed four key strategic partners in PetroChina, Gazprom, Aramco and Qatar Petroleum and shaken up its downstream refining and retail operations. Internally, Shell workers are now subject to a continuous improvement programme that stresses the speed of decision-making, the operational effectiveness of its assets and their integrity in terms of safety.

Another crucial difference has been the creation of the modern BP from a strategy of acquisitions (Amoco, Arco and Burmah Castrol, to name a few) bequeathing different cultures within the group.

Shell, an Anglo-Dutch construct, was a federal structure that found it difficult to issue shares to pay for deals, so stuck to organic growth. Even since adopting a unified structure it has avoided major deals. It is arguably a more unitary culture than BP.

This, then, is all the boring nitty-gritty behind Shell’s numbers on Thursday. But it goes a long way to explaining the increasingly marked difference between Shell and BP.

Oil investors rank companies in terms of what they deliver today in terms of earnings, the prospect of improving on that with more assets and management’s credibility and strategic vision. BP is struggling in all these departments. Maybe Bob Dudley should consider what he can learn from the way Shell has learned from past problems before deciding on how BP moves on from its own.

damian.reece@telegraph.co.uk

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Slick Shell leaves BP in slipstream

Apr 29th, 2011
by John Donovan.
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Shell remains interested in a merger – if the terms and conditions are right…

Oil battle: The Gulf of Mexico crisis has proved disastrous for BP’s shares, while Shell’s have soared

By Hugo Duncan
Last updated at 10:42 PM on 28th April 2011

In the battle of the UK super majors, the first leg of 2011 belongs to Shell by a considerable margin, said Richard Hunter, head of UK equities at Hargreaves Lansdown stockbrokers, yesterday.

It is easy to see why. While BP is plagued by the toxic legacy of the Gulf of Mexico oil spill and troubles in Russia, Royal Dutch Shell powers on.

Shell put its beleaguered arch-rival firmly in the shade yesterday with a 41 per cent rise in first quarter profits to £4.1billion. Just 24 hours earlier, BP revealed that its profits for the period dropped 2 per cent to £3.3billion. And that is not all.

While production at Shell slipped 3 per cent, it tumbled 11 per cent at BP as the company sold assets to help pay for cleaning up the biggest environmental disaster in US history.

‘Whereas BP has had to recognise its business model and turn its attention to the on-going fallout from the Gulf of Mexico spill, Shell has continued to power ahead unabated,’ said Hunter.

The contrasting fortunes of the two companies have not been lost on investors – particularly with BP shareholders missing out on three quarterly dividend payments in the wake of the explosion at the Deepwater Horizon rig in April last year that claimed 11 lives.

The BP dividend has since been reinstated but, at 7 cents a share, it is well behind the 42 cents a share payment at Shell. BP shares have bounced back from the depths plumbed in the crisis but are still 25 per cent lower than they were at the start of 2010. In that time, Shell is up 23 per cent. Such has been the decline at BP – a once-proud oil giant now fighting to repair its battered reputation – that it is now seen as a potential takeover target.

ExxonMobil is among those thought to be interested. It reported a 69 per cent rise in first-quarter profits to £6.4billion yesterday. Shell itself weighed an opportunistic bid during the Gulf of Mexico crisis but the board pulled back from making a rescue offer on fears that legal liabilities could blow a huge hole in BP’ s future prospects.

But it is understood that Shell remains interested in a merger – if the terms and conditions are right. At their lowest point in early June 2010, BP shares were trading at just 296p, valuing the group at £55.6billion. That was less than half the peak value of £123.6billion before the disaster.

The group currently has a market capitalisation of £88billion to Shell’s £145billion. It marks a dramatic role reversal from the middle of the last decade when BP under Lord Browne was the darling of the sector and Shell was in crisis after overstating how much oil it had in reserve.

But over the last 12 months, BP has been bogged down by the Gulf of Mexico disaster – it has so far set aside £25billion to cover costs – and Shell has been flying.

‘Much changed from its troubled days seven or eight years ago, Shell is the perfect example of what any company should do when it finds its back to the wall,’ said Howard Wheeldon, senior strategist at BGC Partners.

Shell has certainly benefited from the surging oil price while its rival floundered. Brent crude averaged $105.52 a barrel in the first quarter of the year, 36 per cent more than the same period in 2010. It has since surged to over $125 a barrel.

Although production at Shell fell 3 per cent to 3.5million barrels of oil a day – compared with 3.6million at BP – output was in line with last year once asset sales are excluded and included 230,000 barrels from new fields.

Shell chief executive Peter Voser aims to increase output to 3.7million barrels a day by 2014 and in March set out a new £60billion investment programme to meet demand for oil and gas. At the same time, he pledged a further £600million in cost cuts.

The Anglo Dutch giant’s big bet on liquefied natural gas looks to be paying off. The largest shipper of LNG in the world, it has benefited from higher prices following the Japanese earthquake as the loss of nuclear power in Japan boosts demand for other sources of energy.

Analysts also welcomed the sharp turnaround in the performance of Shell’s downstream arm, which saw profits more than double to £1billion in the three months.

Investors are now hoping the ramp-up in production and high oil prices could allow Shell to increase its dividend, making it harder still for BP to catch its old rival.

‘These were good results helped by higher prices but also a better operating performance,’ said Tony Shepard at Charles Stanley.

‘Shell appears to be making good progress against its targets,’ he added.

‘Clearly, Shell is delivering a superior performance to other oil majors.’ Shell shares rose 14p to 2322.5p yesterday. BP slipped 3.45p to 462.55p.

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Shell Should Resist Dividend Siren Calls

Apr 28th, 2011
by John Donovan.
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APRIL 29, 2011

By ANDREW PEAPLE

Royal Dutch Shell‘s bump in the road has sure flattened out.

The oil company’s first-quarter earnings were up 53% on a disappointing last quarter of 2010, thanks to high oil prices and improved liquefied-natural-gas sales in Asia and Europe. Stronger cash flow may have some investors pressing for higher dividends. Shell should resist, for now.

Like BP, which reported on Wednesday, Shell has been shedding unwanted assets, leading to output shortfalls. Its production fell 3% year on year. But, also like BP, Shell’s results were boosted by higher downstream profits, which doubled year on year thanks to sharply wider refining margins.

But Shell is in much better shape than its British rival. It is selling assets by choice rather than necessity, to improve overall efficiency. Shell’s return on average capital employed improved in the first quarter to 12.9% against 11.5% in 2010. Shell expects production to be flat year on year in 2011 before rising 6% in 2012, with major projects such as its liquefied-natural-gas operations in Qatar coming on stream.

The better performance might appear to leave room for higher dividends. Operating cash flow of $8.6 billion in the first quarter amply covered $4.1 billion of capital spending and $1.6 billion of dividend payouts, while Shell’s debt-to-equity ratio fell to 14%.

Still, Shell should remain cautious until it is clear either that its output-raising plans are firmly on track or that elevated oil prices are here to stay. Based on its increased production outlook, the company is targeting $43 billion of cash flow in 2012 based on average oil prices at $80 a barrel. Right now, even with oil prices already averaging $87 a barrel in the last 12 months, Shell is short of that target: It generated $36 billion of cash flow over that period. There is room to return more to shareholders when investment needs allow. Shell paid out 29% of operating cash flow over the past four quarters compared with Exxon Mobil’s 42%.

Investors wanting to share more of Shell’s good fortune will have to be a bit more patient.

Write to Andrew Peaple at andrew.peaple@dowjones.com

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Worst case Arctic spill could reach 58M gallons

Apr 28th, 2011
by John Donovan.
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DAN JOLING, Associated Press: Published 04:10 p.m., Wednesday, April 27, 2011

ANCHORAGE, Alaska (AP) — The federal agency overseeing offshore drilling in Alaska says a worst-case scenario for a blowout in the Chukchi Sea lease area could put more than 58 million gallons of oil into Arctic waters.

That’s far more than the major leaseholder in the Chukchi, Shell Oil, says it could handle under its response plan.

A memo prepared by the Bureau of Ocean Energy Management, Regulation and Enforcement says a blowout worst-case scenario could discharge nearly 2.6 million gallons per day initially.

The agency says discharge from the hypothetical blowout would decline rapidly but could leak more than 58 million gallons in a month.

A Shell spokesman says he hasn’t seen the report but the company would not encounter wells of that flow rate for many years into the project.

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Shell 1Q Adjusted Profit Soars 30% To $6.29B On Higher Oil Price

Apr 28th, 2011
by John Donovan.
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APRIL 28, 2011 3:15 A.M. ET

By Alexis Flynn Of DOW JONES NEWSWIRES

LONDON (Dow Jones)–Royal Dutch Shell PLC (RDSB.LN) Thursday posted a consensus-beating 30% rise in adjusted profit for the first quarter, as high oil prices, upstream production growth and continued cost-cutting all combined to good effect.

“We continue to make good progress in implementing our strategy, improving near-term performance, delivering a new wave of production growth, and maturing the next generation of growth options for shareholders,” said Chief Executive Peter Voser.

Shell said the clean current cost of supplies, a keenly-watched figure that strips out gains or losses from inventories and other non-operating items, was $6.29 billion in the three months ended March 31, compared with $4.82 billion in the first quarter of 2010. This was above expectations of $6.11 billion in a Dow Jones Newswires poll of nine analysts.

Total oil and gas production was 3.504 million barrels of oil equivalent per day, a decline of 2.5%. Shell produced greater volumes in the first quarter of 2011 compared with last year in Nigeria and Middle East/North Africa, according to data from the company. But the company reported drops in Europe in oil and gas, according to the data.

The Anglo-Dutch energy company has posted some impressive headline profit numbers for the first quarter, said ING analyst Jason Kenney. Its exploration and production division underperformed slightly compared with expectations, but downstream was impressive, he said. There are some questions about whether the strong downstream performance is sustainable and how much longer the costly ramp up of Shell’s major new projects will take, Kenney added.

Net profit for the quarter totaled $8.78 billion, up 60% from $5.48 billion a year ago.

Group revenues were $114.84 billion, compared with $88.03 billion in the first quarter of 2010.

Diluted earnings per share were 1.42 cents compared with 89 cents the previous year.

Shell B shares closed at 2,317 pence Wednesday.

-By Alexis Flynn, Dow Jones Newswires; +44 (0)20 7842 9471; alexis.flynn@dowjones.com

(James Herron in London contributed to this report.)

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