|Bid||2,275.00 x 0|
|Ask||2,371.50 x 0|
|Day's Range||2,286.50 - 2,312.50|
|52 Week Range||3.05 - 2,637.50|
|Beta (3Y Monthly)||0.80|
|PE Ratio (TTM)||919.16|
|Forward Dividend & Yield||1.46 (6.37%)|
|1y Target Est||N/A|
(Bloomberg) -- Saudi Arabia set a valuation target for Aramco’s initial public offering well below Crown Prince Mohammed bin Salman’s goal of $2 trillion and pared back the size of the sale to ensure the world’s largest oil producer successfully lists on the Riyadh stock exchange next month.The Saudi central bank also relaxed lending limits to boost demand from local investors after bankers were unable to convince many international money managers of the merits of the deal.Aramco will sell just 1.5% of its shares on the the local stock exchange, about half the amount that had been considered, and seek a valuation of between $1.6 trillion and $1.71 trillion.While that would allow Aramco to overtake Apple Inc. as the world’s biggest public company by some distance, the plans are a long way from Prince Mohammed’s initial aims: a local and international listing to raise as much as $100 billion for the kingdom’s sovereign wealth fund.At the lower end of the price range, the offer would fall short of a record, coming in just below the $25 billion raised Alibaba Group Holding Ltd.’s in 2014.The lackluster response from investors outside the kingdom meant Aramco decided shares won’t be marketed in the U.S. and Canada as originally planned. Japan’s also off the list. But bankers working on the deal said they were confident that there was more than enough local demand to ensure the deal’s success at the proposed valuation.Aramco Chief Executive Officer Amin Nasser kicked off the IPO’s final phase at a presentation for hundreds of local fund managers in Riyadh.This is “a historic day for Saudi Aramco,” Nasser said. “We are excited about the transition to being a listed company.”Aramco will need to lean heavily on investors, large and small, to get the job done. The Saudi Arabian Monetary Authority will allow smaller retail investors will be able to borrow twice their cash investment, double the normal leverage limits the regulator allows for IPOs, according to people familiar with matter.The kingdom’s richest families, some of whom had members detained in Riyadh’s Ritz-Carlton hotel during a so-called corruption crackdown in 2017, are expected to make significant contributions to the IPO and will be allowed to borrow in either higher multiples to finance their purchases.Cornerstone InvestorsThe final version of the prospectus didn’t identify any cornerstone investors, though the company is still in talks with Middle Eastern, Chinese and Russian funds.Foreign investors had always been skeptical of the $2 trillion target and recently suggested they would be interested at a valuation below $1.5 trillion. That would offer a return on their investment close to other leading oil and gas companies like Exxon Mobil Corp. and Royal Dutch Shell Plc.The new valuation implies Aramco, which has promised a dividend of at least $75 billion next year, will reward investors with a dividend yield of between 4.4% and 4.7%. Exxon Mobil pays a dividend yield of just under 5%, while Shell pays 6.4%.Saudi Arabia has been pulling out all the stops to ensure the IPO is a success to a skeptical audience. It’s cut the tax rate for Aramco three times, promised the world’s largest dividend and offered bonus shares for retail investors who keep hold of the stock.“Aramco’s price range takes into account some uncertainties that weren’t fully absorbed when the IPO was first floated,” such as governance, said Jaafar Altaie, managing director of Abu Dhabi-based consultant Manaar Group. “The lower range reflects uncertainties. It takes into account issues of supply that are very fluid, and demand that doesn’t look so good now.”Aramco has also faced the challenge of the strengthening global movement against climate change that’s targeted the world’s largest oil and gas companies. Many foreign investors are concerned the shift away from the internal combustion engine -- a technology that drove a century of steadily rising fossil fuel demand -- means consumption of oil will peak in the next two decades.Speaking in Riyadh on Sunday, Nasser acknowledged the prospect of peak demand, but argued that with the lowest production costs in the industry, Aramco would be able to win market share from less efficient producers.The Aramco IPO is a pillar of Prince Mohammed’s much-hyped Vision 2030 plan to change the social and economic fabric of the kingdom and attract foreign investment. The prince, who rules Saudi Arabia day-to-day, is trying to recover his reformist credentials after his global reputation was damaged by the 2018 assassination of government critic Jamal Khashoggi in the kingdom’s Istanbul consulate.Proceeds from the IPO will be transferred to the Public Investment Fund, which has been making a number of bold investments, plowing $45 billion into SoftBank Corp.’s Vision Fund, taking a $3.5 billion stake in Uber Technologies Inc. and planning a $500 billion futuristic city.No matter what the final valuation, the share sale will create a public company of unmatched profitability. Aramco earned net income of $111 billion in 2018 on revenue of $315 billion.\--With assistance from Nayla Razzouk, Abbas Al Lawati, Filipe Pacheco, Archana Narayanan and Dinesh Nair.To contact the reporters on this story: Matthew Martin in Dubai at email@example.com;Javier Blas in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Nayla Razzouk at email@example.com, ;Stefania Bianchi at firstname.lastname@example.org, Bruce StanleyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- Saudi Arabia has accepted the reality that the initial public offering of its state oil company, Saudi Arabian Oil Co., won’t generate a trillion-dollar valuation beginning with “2.” Moreover, there is tacit acknowledgement that investors outside the kingdom think Aramco is worth even less than the $1.6 trillion to $1.7 trillion now sought. The transaction is going to fall short of its original ambitions, both strategic and financial.The $100 billion gulf in the valuation range announced Sunday represents a 6% spread over the midpoint. This is tight for an IPO. Usually, when bankers set very narrow price ranges, it's because they think the shares will sell easily at a higher price and, therefore, perform strongly once listed. That assumption faces a severe test.For overseas investors, it appears $1.5 trillion was their limit. Saudi Arabia may feel the company is worth more, and not want to give it away at what it thinks is too cut-rate a price to outsiders. But that is the reality of any IPO: A company is sold a bit cheaply, in return for the owner monetizing a stake and obtaining a liquid currency.In any event, much of that conversation has now ended, with Aramco’s shares no longer marketed actively in North America. Hotels in Boston and New York should brace for a spate of cancellations. Sure, other international investors may yet be treated to the pitch, and qualifying overseas funds can still proactively buy in, or purchase the shares once listed. But the hurdles deterring them remain.While Aramco generates more profit than any other company in the world, it is also the biggest producer of hydrocarbons, a sector from which investors have been running away. It is also impossible to treat the investment decision to buy Aramco as somehow unaffected by the fact that it’s controlled by the repressive Saudi regime. And, as with most national oil companies, there is a tension between market demands and political imperatives, with the latter usually winning. It is hard to see Aramco as being able to make big moves that aren’t in step with the wishes of the kingdom.Meanwhile, Aramco offers a dividend yield below that of western oil majors like Exxon Mobil Corp. and Royal Dutch Shell Plc. True, those companies don’t have Aramco’s supercharged profitability. On the other hand, they don’t have to fund a country with their earnings.The shortage of international interest means local demand, and passive buying by index funds, will have to do the heavy lifting. A retail offering of 0.5% with a further 1% institutional float must meet a total offer size of roughly $25 billion. That is a lot of orders to find. The free-float of Saudi Arabia’s local exchange, the Tadawul, is only $260 billion — less than Exxon’s market cap.We are a long way from where this all started almost four years ago. The headline then was a possible $100 billion issue, comprising 5% of the company at a $2 trillion valuation endorsed by the world’s biggest fund managers. Now, selling about 1.5% for $25 billion at home, the risk is that the shares end up being highly illiquid once listed. They have been marketed almost like bonds, with guaranteed dividends and bonus shares for retail investors who hold on for six months. This may dampen selling pressure, but could lead fresh investors to sit tight until it’s clear where the price and volumes are settling.Having failed to live up to the hype, it may have been embarrassing to pull Aramco’s debut. But a mainly Saudi transaction doesn’t help establish Aramco’s independent commercial identity. And if simply harvesting cash for Saudi’s sovereign wealth fund was the primary objective, cutting the price and finding more buyers would probably raise a bigger sum.To contact the authors of this story: Chris Hughes at email@example.comLiam Denning at firstname.lastname@example.orgTo contact the editor responsible for this story: Beth Williams at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Oil climbed to the highest in nearly two months amid optimism that the U.S. and China are close to locking down a partial trade deal.Futures jumped 1.7% on Friday in New York, pushing a weekly advance to 0.8% after White House economic adviser Larry Kudlow said late Thursday negotiations between the two countries were coming down to the final stages. That outweighed U.S. government data earlier this week that showed an expansion in crude stockpiles and oil production at record-high levels.“The most important factor is economic growth and demand growth and the trade talks are going to be the indicator for expectations about how that’s going to play out,” said Gene McGillian, senior analyst and broker for Tradition Energy Group in Stamford, Connecticut. “We’ve seen optimism surrounding the trade deal bring some length into the market.”Still, U.S. crude is down about 13% since late April. The Organization of Petroleum Exporting Countries has indicated it won’t cut output deeper to stave off the impending surplus and predicts worldwide supplies will exceed demand by about 645,000 barrels a day in the first half of next year. Meanwhile, the International Energy Agency said soaring production outside OPEC and high inventories will keep consumers comfortably supplied next year.West Texas Intermediate for December delivery gained 95 cents to settle at $57.72 a barrel on the New York Mercantile Exchange.Brent for January settlement rose $1.02 to end the session at $63.30 a barrel on the London-based ICE Futures Europe Exchange. The global benchmark crude traded at a $5.47 premium to WTI for the same month.Also see: Russia Is Making More Money From OPEC+ Deal Than Saudi ArabiaU.S. crude output increased by 200,000 barrels a day to 12.8 million a day last week, according to Energy Information Administration data on Thursday. While nationwide crude inventories rose, stockpiles at the key storage hub at Cushing, Oklahoma, declined for the first time in six weeks.To contact the reporter on this story: Jacquelyn Melinek in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: David Marino at email@example.com, Jessica Summers, Christine BuurmaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Transaction in Own Shares 15 November 2019 • • • • • • • • • • • • • • • • Royal Dutch Shell plc (the ‘Company’) announces that on 15 November 2019 it purchased the following.
(Bloomberg) -- Royal Dutch Shell Plc has made $1 billion from trading fuel oil this year, making it one of the standout winners from rules designed to make the shipping industry greener.Shell said last month that it made substantial money in fuel-oil trading in the third quarter, but the company didn’t disclose the size of the profits. Shell traders celebrated hitting the $1 billion mark so far, likely the biggest by any one company in fuel oil this year, by ringing a bell on the company’s trading floor in London earlier this month, people familiar with the matter said.Shell declined to comment.The fuel-oil market has been shaken this year by the so-called IMO 2020 new regulations that ban the use of high-sulfur fuel oil, known as HSFO, to power ships. The rules are aimed at combating human health conditions such as asthma and environmental damage including acid rain. Prices are collapsing because the global shipping fleet, which burns more than 3% of the world’s oil, will instead have to consume very low sulfur fuel-oil, or VLSFO.Although better known for its oil fields, refineries and pump stations, Shell runs an in-house trading business that’s larger than the better-known independent oil traders like Vitol Group, Glencore Plc and Trafigura Group, handling 13 million barrels of oil equivalent per day. The company describes itself as “one of the largest and most experienced energy merchants in the world” with major trading floors in Houston, London, Dubai, Rotterdam and Singapore.Europe’s largest oil company told investors that its downstream business, which includes refining, oil trading and fuel stations, benefited during the third quarter from “stronger contributions from oil-products trading and optimization, mainly fuel oil.” In a conference call with analysts, Jessica Uhl, Shell’s head of finance, said the company’s traders benefited from “the change in the fuel standards” linked to IMO 2020, the name by which the ship-fuel rules are widely known.It’s unclear exactly how Shell’s traders made their profit, but premiums for fuel that’s lower in sulfur have surged this year, potentially benefiting those companies that produce more of the product. Shell’s refining system is a relatively sophisticated one, something that could put the company in a better position as the regulations enter into force. The margin to produce high-sulfur fuel oil in Europe recently slumped to a more than 10-year low, according to the International Energy Agency.The new shipping rules allow traders to produce blended fuels, including mixing so-called low sulfur fuel-oil, or LSFO, mainly used in power stations that burn the fuel to produce electricity, with diesel to produce VLSFO. The spread between high and low sulfur fuel-oil blew up to almost $30 a barrel in late October, compared with an average of about $2 a barrel in 2018, according to the International Energy Agency.\--With assistance from Jack Wittels.To contact the reporters on this story: Javier Blas in Dubai at firstname.lastname@example.org;Alaric Nightingale in London at email@example.comTo contact the editors responsible for this story: Will Kennedy at firstname.lastname@example.org, Alaric Nightingale, John DeaneFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Royal Dutch Shell has appointed investment bank Citi to run the sale of its onshore Egyptian oil and gas assets which could fetch around $1 billion (£781.5 million), sources close to the process said. Shell said last month it plans to sell its onshore upstream assets in the Western Desert to focus on expanding its Egyptian offshore gas exploration. The Western Desert portfolio includes stakes in 19 oil and gas leases of which Shell's working interest included production of around 100,000 barrels of oil equivalent per day last year, one of the sources said.
(Bloomberg) -- Royal Dutch Shell Plc is reassuring investors, workers, and anyone else who will listen that it’s the international oil major that’s staying in Canada as others pull up stakes.Shell’s future in the country is largely as a natural gas producer and exporter focused on the $30 billion LNG Canada project, though the company is also committed to its local chemicals and retail businesses, Shell Canada head Michael Crothers said in an interview.A number of large multinational energy companies have either left or reduced their presence in the country in recent years, including Norway’s Equinor ASA, France’s Total SA and ConocoPhillips. Independent explorers like Devon Energy Corp., Apache Corp. and Marathon Oil Corp., as well as pipeline giant Kinder Morgan Inc., have gotten in on the act, too. Even Encana Corp., a Canadian company born out of the nation’s 19th-century railway boom, said last month that it’s moving to the U.S. and dropping the link to its home country from its name.Shell stoked some concern that it would be among the pack leaving when it sold most of its stake in the Athabasca Oil Sands Project to Canadian Natural Resources Ltd. for about $8.2 billion in 2017. The company went a long way toward allaying those fears when LNG Canada announced it would build a massive export facility on British Columbia’s Pacific Coast that’s slated to operate for decades to come.“We’re the multinational that’s staying,” Crothers, 57, said from Shell Canada’s headquarters in Calgary. “We’re the multinational that’s investing. We see enormous opportunity here because of the resource base we have and the excellent people we have.”Shell has been in Canada for more than 100 years, evolving from a broad-based, integrated oil company -- at one point even mining coal -- into an oil-sands focused producer and now into a focus on gas, said Crothers, whose full title is president and country chair of Shell Canada.Aside from the liquefied natural gas project -- of which it owns 40% -- and the Groundbirch gas production complex in British Columbia that will partly supply it, Shell has some light oil production, the Scotford refinery, two chemicals plants and a carbon capture facility in Alberta, plus the Sarnia refinery and chemicals and lubricants plants in Ontario.The company sought to sell the Sarnia refinery and a chemicals plant this year as it focuses on LNG Canada, but pledged to keep operating the units if it didn’t get a good offer.Shell’s B shares were down 1.3% to 2,295 pence at 4:34 p.m. in London. They are down about 2% for the year. Shell also still owns a 10% stake in the Athabasca oil sands, which it sees as a core asset because it provides feedstock for the Scotford complex. Shell has no plans to sell that stake, Crothers said.“We need to be able to ensure that we have access to that supply, and without some kind of equity stake, we feel that would be a concern,” he said.The company has about 3,600 workers in the country and is hiring for LNG Canada, Crothers said. Other parts of the business are always facing cost pressures, keeping headcount in check, he said.Another growth area is Shell’s retail business, which is building 50 new stations a year in the country and experimenting with new services like electric-vehicle charging stations and hydrogen refueling stations for fuel-cell vehicles, he said.“We’re a big, integrated business,” Crothers said. “We’ve never left, but we keep evolving.”(Updates with sharels in ninth paragraph. A previous version corrected to say chemicals plant in eighth paragraph.)To contact the reporter on this story: Kevin Orland in Calgary at email@example.comTo contact the editors responsible for this story: Simon Casey at firstname.lastname@example.org, Carlos CaminadaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Oil fell as equity markets faltered on concern chances of a U.S.-China trade settlement are slipping away.Futures in New York fell 0.7% on Monday. President Donald Trump dashed expectations over the weekend that a trade deal had been reached. Meanwhile, Oman’s oil chief said OPEC and allied producers probably won’t deepen output cuts when they meet next month.“Obviously we are a little concerned about the trade war,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.Oil has rallied more than 8% since early October amid signals the U.S. and China were moving closer to settling the protracted trade dispute that’s undermining energy demand. Hedge funds have cautiously revived bets on rising prices.West Texas Intermediate for December delivery fell 38 cents to close at $56.86 a barrel on the New York Mercantile Exchange.Brent for January delivery slid 33 cents to $62.18 on the London-based ICE Futures Europe Exchange. The global crude benchmark traded at a $5.28 premium to WTI for the same month.See also: Aramco IPO Prospectus Flags Peak Oil Demand Risk in 20 Years“These days it’s largely the trade war” that’s moving prices, Bob McNally, president of Rapidan Energy Group and a former oil official at the White House under President George W. Bush, said in a Bloomberg TV interview on Monday. “Folks are also looking into early next year and seeing an oversupplied market, and there’s questions whether OPEC+ will rise to the challenge.”To contact the reporter on this story: Jacquelyn Melinek in New York at email@example.comTo contact the editors responsible for this story: David Marino at firstname.lastname@example.org, Mike Jeffers, Joe CarrollFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.BP Plc, Royal Dutch Shell Plc, Total SA and Vitol Group are among partners in a new exchange to trade Abu Dhabi’s flagship oil grade in what could become a new price benchmark for a fifth of the world’s crude.Intercontinental Exchange Inc. Chairman Jeffrey Sprecher confirmed the partnerships, speaking on Monday to reporters in Abu Dhabi. Other partners in the exchange are Petrochina Co., Inpex Corp. and JXTG Holdings Inc. of Japan, PTT Pcl of Thailand, and South Korea-based GS Caltex Corp., he said.Although oil producers across the Persian Gulf pump about a fifth of the world’s oil, they have never had a region-wide, exchange-traded crude benchmark. Adnoc wants the Murban futures contract to become a benchmark for crude from the Middle East, the biggest oil-exporting area of the world.Abu Dhabi National Oil Co. will join major international oil companies, traders and customers as founding partners in a platform operated by ICE for the trading of futures contracts in Abu Dhabi’s flagship Murban crude, Adnoc Chief Executive Officer Sultan Al Jaber said in a speech earlier Monday. Murban futures will allow buyers to hedge in the open market, he said.Trading StartThe contracts are likely to begin trading around June, and are set to be the benchmark for other Abu Dhabi grades, Al Jaber said in an interview after ICE’s announcement. ICE will be a majority shareholder in the Abu Dhabi futures exchange, he said.Having a large number of well-known international partners “gives you instant credibility that what we’re doing is the right step forward,” Al Jaber said.ICE plans also to introduce swaps contracts on the Abu Dhabi exchange -- for example, between Murban and North Sea Brent -- to improve liquidity by offering more hedging options. The swaps would start trading at about same time as the Murban futures, Stuart Williams, president of ICE Futures Europe, said in an interview in Abu Dhabi.Murban is Adnoc’s most plentiful grade, at about 1.7 million barrels a day, and accounts for more than half of the crude pumped in the United Arab Emirates. Abu Dhabi holds most of the oil in the U.A.E., the third-largest producer in the Organization of Petroleum Exporting Countries.Crude BenchmarksAbu Dhabi won’t be the first regional producer to offer futures contracts for its crude. Oman and the neighboring U.A.E. emirate of Dubai joined with CME Group Inc. in 2007 to start the Dubai Mercantile Exchange to trade Omani crude futures. Oman, Dubai and Saudi Arabia are the only producers in the Gulf to price off the contract; most of the others base their monthly crude pricing on the Dubai and Oman crude price assessments by S&P Global Inc.’s Platts.There is room for more than one benchmark in the region, and the Oman and Murban markers could act as reference points for different crude grades and qualities, Al Jaber said. Murban is lighter and more sweet, while Oman is heavier and more sour, he said.Murban generally fetches higher prices on global markets and is similar in quality to Brent crude, the international benchmark. Brent futures are traded on the London-based ICE Futures Europe Exchange.To contact the reporters on this story: Anthony DiPaola in Dubai at email@example.com;Javier Blas in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Nayla Razzouk at email@example.com, Bruce Stanley, Amanda JordanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Investors can buy low cost index fund if they want to receive the average market return. But in any diversified...
Royal Dutch Shell said there was a gas leak on Friday on a unit at its 404,000 barrel per day Pernis oil refinery in the Netherlands. Shell did not specify the unit involved. The company separately reported on Nov 6 that while taking one of the units at Pernis offline for scheduled maintenance flaring occurred.
Shell International Finance B.V. and Royal Dutch Shell plc 8 November 2019 Publication of Final Terms The following Final Terms are available for viewing: Final.
(Bloomberg) -- Graeme Fergusson sees life in the death of an oil field.Five years ago, the blonde-haired native of Aberdeen, Scotland had a fairly conventional role in the industry, focusing on squeezing every drop of crude from reservoirs in the North Sea. But a brush with the worst oil slump in a generation sent his career on a detour and he’s now more inclined to perform last rites on a field than to keep it alive.Fergusson is the managing director of Fairfield Decom Ltd., which specializes in dismantling offshore oil and gas platforms. It may not be as glamorous as frontier exploration, but it’s potentially a huge business.“Over 20 billion pounds ($26 billion) is to be spent on U.K. decommissioning by 2030,” said Paul Main, a Wood Mackenzie Ltd. analyst focused on the upstream supply chain. By the middle of the next decade, companies will be spending more on removing redundant oil and gas facilities than developing new fields in the area, he said.Historic SlumpWhen Fergusson became chief financial officer of Fairfield Energy in 2015, the company managed the Greater Dunlin Area of the North Sea. Dunlin was an old field, first discovered by Royal Dutch Shell Plc in 1973, but was still pumping. Then came a historic slump in oil prices, from above $100 a barrel in 2014 to below $30 two years later.Cheap crude and looming maintenance costs meant the business was no longer viable, Fergusson said in an interview. In June 2015, Fairfield turned off the taps at Dunlin after 37 years of production.“We had to convert and become something else, which was the beginning of the Fairfield Decom story,” Fergusson said. There was lots to learn because the Greater Dunlin Area, which includes the Osprey and Merlin field, plus associated infrastructure is “as complicated as it can get from a decommissioning perspective.”Cleaning UpDunlin is a concrete gravity-based structure, not dissimilar to Shell’s Brent platforms. On the huge submerged base sits a 20,000-ton structure made up of 30 modules, a drilling derrick, a flare boom and a helipad. Beneath the water are dozens of wells, some of which were drilled as far back as the 1970s.Fairfield Decom is structured as a joint venture between Fairfield Energy’s parent Decom Energy, Heerema Marine Contractors and AF Offshore Decom. Dunlin’s decommissioning process is about two-thirds complete. All 16 subsea wells have been plugged and abandoned, plus a quarter of the 45 platform wells in the area. The company has removed subsea infrastructure and is now preparing to get rid of the topsides -- the most visible part of an oilfield.Shell actually built the Dunlin platform, but in recent years oil majors have been selling aging North Sea fields to smaller companies, in some cases also transferring the decommissioning liabilities.In 2016, the largest companies in the North Sea were not willing to hand over their decommissioning activities to smaller operators, said Fergusson. “The dial has moved massively” since then as companies realize decommissioning isn’t their core business, he said.The process can be controversial, especially for well-known companies like Shell. The Anglo-Dutch company is seeking to leave the legs of its Brent platform in place, saying that removing them would pose a greater environmental risk. Greenpeace opposes the plan and recently boarded two of the field’s platforms, calling on the company to “clean up your mess!”Fairfield has yet to submit a final decommissioning program to the government for the field’s concrete legs, each of which weigh as much as the Eiffel Tower.Business OpportunitySo far, Greater Dunlin is Fairfield’s only decommissioning project, but Fergusson said the company has drawn interest from a number of North Sea players, from which it has “a number of propositions.”The U.K. Department for Business, Energy & Industrial Strategy has required operators to set aside 844 million pounds so far to cover decommissioning costs. Fairfield Energy, with its partner Mitsubishi Corp. as a backstop, put in place the funds for the Greater Dunlin Area before the fields ceased production.The U.K. Oil & Gas Authority estimates that the total cost of decommissioning in the country currently stands at 49 billion pounds. The government body reduced its estimate this year by 10% from 2018 as improved planning and execution practices resulted in lower costs. The OGA says that there is still “considerable opportunity” for improvements, which would help meet its 39 billion-pound decommissioning cost target.Decommissioning has typically been done by a number of service providers focusing on different elements of the process, from plugging wells to operating vessels that remove platforms. Fairfield Decom aims to capture this business by offering an integrated approach that will cut costs, Fergusson said. Because companies can offset some of the expense of shutting down platforms against their tax bill, doing it cheaper could also benefit government coffers, he said.“It’s to everyone’s benefit that we do decommissioning at the lowest possible cost,” said Fergusson. “The taxpayer is clearly on the hook for a substantial portion of this.”(Updates with corporate structure in ninth paragraph.)To contact the reporter on this story: Laura Hurst in London at firstname.lastname@example.orgTo contact the editors responsible for this story: James Herron at email@example.com, Amanda JordanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- Royal Dutch Shell Plc made a big investment in offshore energy this week — wind energy, that is. The very next day, Brazil announced the results of a more traditional energy auction in the waters off its coast. They were not good.The country’s biggest-ever sale of oil deposits flopped on Wednesday morning. Only two out of four blocks were sold, and only one of those involved foreign bidders, with China’s CNOOC Ltd. and China National Oil and Gas Exploration and Development Co. taking all of 10% of the Buzios field. Petroleo Brasileiro SA took the other 90% and all of the Itapu block. Western oil majors, such as Shell or Exxon Mobil Corp., were nowhere to be seen.Offshore oil investment was all the rage among Big Oil during the supercycle, with capital expenditure almost quadrupling in the decade up to 2014. That is the problem. The majors poured money into large, multi-year projects prone to delays and, because of their often bespoke engineering, spiraling budgets. The result: tumbling return on capital and an inability to dial back investment quickly when the oil crash hit in 2014. Roughly 3,000 new offshore projects sanctioned between 2010 and 2014 have either barely generated any value for oil companies or are expected to generate none at all, according to a recent study published by Rystad Energy, a consultancy:More recent investments score better, mostly because the boom tailed off, with offshore capex falling by more than half between 2014 and 2018. That took the heat out of industry inflation; and, because of the bonfire of returns in the prior decade, oil majors got smarter about such things as standardizing offshore equipment design to cut costs and shorten schedules. The pace of new projects has picked up again after the slump. Exxon, for example, has effectively opened up an entire new offshore zone with its Guyanese fields.Still, one look at the stock prices of oilfield services firms, especially offshore-focused types such as Transocean Ltd. and Noble Corp. Plc, tells you this investment wave is nothing like the tsunami of yesteryear. Bad memories combined with unease about both near- and long-term oil demand make bold bets on big, multi-year offshore projects a tough sell with investors more interested in payouts. Even Exxon’s success in Guyana gets overshadowed by the fact that the company’s capex bill leaves it borrowing to pay its dividend. And Exxon, like Chevron Corp. and other majors, has swung more of its spending toward shorter-cycle onshore fracking in North America.Brazil’s brush-off is an ominous sign the investment discipline demanded by energy investors is choking off one of the world’s biggest sources of oil-supply growth. In its latest World Oil Outlook published this week, OPEC cited Brazil as being second only to the U.S. in terms of medium-term growth, and number one in terms of projected long-term non-OPEC growth. Bob Brackett, an analyst at Sanford C. Bernstein, published a report a couple of weeks ago pondering if global offshore oil supply would peak next year, perhaps for good.The implications are profound. There is a wide range of views on when global oil demand will slow or peak altogether. If it is later than sometime next decade, then the decline in offshore production that will inevitably follow a mass exodus from this part of the business could stoke another upcycle in prices. The Brazil auction suggests, however, that such possibilities play second fiddle to expectations on the part of many investors that oil has entered its twilight years.Such results are ominous for offshore services providers, of course, and for the countries involved. Brazil’s currency slumped Wednesday morning as the market digested the lack of foreign capital targeting the country’s choicest oil resources.Another country that should take note is Saudi Arabia. Like Brazil, it’s trying to tempt foreign buyers to pay up for a piece of its black gold. On the same morning, reports emerged that Saudi Arabian Oil Co. is seeking commitments from Chinese state-owned entities to invest in its IPO. Such strategic buyers do provide cash. But as Brazil could tell Aramco, turning to them also says a lot about the broader appetite for what you’re selling.To contact the author of this story: Liam Denning at firstname.lastname@example.orgTo contact the editor responsible for this story: Mark Gongloff at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
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