|Bid||2,334.00 x 0|
|Ask||2,334.50 x 0|
|Day's Range||2,323.00 - 2,339.50|
|52 Week Range||8.89 - 2,647.00|
|Beta (3Y Monthly)||0.80|
|PE Ratio (TTM)||9.30|
|Forward Dividend & Yield||1.46 (6.29%)|
|1y Target Est||36.11|
(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.
Transaction in Own Shares 11 November 2019 • • • • • • • • • • • • • • • • Royal Dutch Shell plc (the ‘Company’) announces that on 11 November 2019 it purchased the following.
(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.
November 6, 2019 This notification is made in accordance with Article 19 of the EU Market Abuse Regulation 1. Details of the person discharging managerial.
It seems that bullish sentiment is finally returning to oil markets with trade war discussions making progress and OPEC suggesting that it will cut deeper in December
(Bloomberg) -- Caught between a client seeking a $2 trillion valuation and skeptical foreign investors reluctant to pay anywhere near that amount, the banks working on Saudi Aramco’s initial public offering went for compromise: tell both sides they’re right.The result risks pleasing nobody, however.Aramco appointed more than 20 banks to advise on what could be world’s largest share sale, and their analysts -- who are supposed to work independently of the investment bankers advising Aramco -- put together reports on the company’s financial performance and outlook before the share sale kicked off. Consensus is in short supply.Among 16 banks that offered a valuation, the range in estimates ran from $1.1 trillion at the bottom right up to $2.5 trillion, a number that even Saudi Crown Prince Mohammed bin Salman might find optimistic. The midpoint was $1.75 trillion, according to people who’ve reviewed all the research.The giant spread prompted incredulity among institutional investors and unhappiness in Saudi Arabia, where officials were surprised by the lower end of the valuation ranges, according to people familiar with matter.The full $1.4 trillion range is more than the combined market capitalization of the world’s six most valuable publicly traded oil and gas producers: Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp, PetroChina, Total SA and BP Plc.Here are the range of some of the banks with mandates on the deal:France’s BNP Paribas did something different and had one number -- a rather precise $1.424394 trillion. JPMorgan Chase & Co. and UBS Group AG both wrote reports on Aramco, but declined to give valuation estimates to their clients, an unusual decision for a bank working on an IPO.Aramco or RBC didn’t immediately respond to a request from comment. The other banks have previously declined to comment on the numbers.What explains the huge spreads? Banks are caught between the expectations of the client and the realities of the global stock market. Prince Mohammed has long insisted the state oil company is worth $2 trillion, although he’s prepared to scale back his expectations to between $1.6 trillion and $1.8 trillion, according to people familiar with the IPO.The share price of Exxon Mobil, Shell and other publicly traded oil company tell a different story. Based on the dividend yield paid by Shell, for example, Aramco -- which has promised to pay investors $75 billion next year -- would be valued at closer to $1.25 trillion.“As a U.K. investor, I would view Aramco’s lower yield as a negative,” said Stephen Bailey, a fund manager at Liontrust.“We prefer Royal Dutch Shell, given that it has a better investment profile and has fewer geopolitical risks associated with its stock.”To be sure, there are reasons why Aramco may yet attract a premium valuation. Even skeptics admit Aramco enjoys uniquely low costs. Perhaps more importantly, rich Saudi families are under intense political pressure to invest -- the IPO is the centerpiece of Prince Mohammed’s economic reform program.However, analysts at institutions not involved in the IPO are relatively downbeat. Sanford C. Bernstein & Co., for example, said fair value is between $1.2 trillion to $1.5 trillion. Palissy Advisors, a small natural resources specialist, said $1 trillion may be closer to the mark.\--With assistance from Archana Narayanan, Myriam Balezou and Swetha Gopinath.To contact the reporters on this story: Will Kennedy in London at firstname.lastname@example.org;Matthew Martin in Dubai at email@example.com;Javier Blas in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Will Kennedy at email@example.com, Bruce StanleyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Royal Dutch Shell is buying French renewable power company EOLFI as part of its plans to ramp up the oil major's electricity business. EOLFI has largely focused on solar and wind projects, including offshore wind farms. Offshore wind is one of the fastest growing renewables markets, with floating structures the technology's next frontier because they utilise waters that are too deep for traditional turbines fixed to the seabed.
The Information Memorandum constitutes a base prospectus for the purposes of Article 5.4 of Directive 2003/71/EC as amended or superseded. Full information on Shell International Finance B.V. and Royal Dutch Shell plc is only available on the basis of the Information Memorandum.
(Bloomberg) -- Microsoft Corp. and technology rivals spend a lot of time talking about machine learning. Now Microsoft is talking about something called machine teaching.No, the software maker doesn't plan to send robots into classrooms. In a world where factories and wind farms will increasingly run on autonomous systems, drones will criss-cross cities delivering packages and robots will operate in underground mines, Microsoft wants to make the software that helps mechanical and chemical engineers teach those devices how to behave, where to go and how to maintain safe conditions.Microsoft last year acquired a company called Bonsai that makes this kind of software, merged it with some work from its research arm — a group of Microsoft researchers wrote a paper on this idea back in 2017 — and is now expanding a software preview so more potential customers can test it. As the company tries to sell more of its Azure cloud software to industrial companies, it aims to make these kinds of autonomous programs a profitable part of that portfolio. Many consumers will be most familiar with this kind of software as it exists in self-driving cars, but Microsoft plans to leave that part of the market to the Teslas of the world.Delta Air Lines Inc. is running a project to improve their baggage handling using the technology, Microsoft will announce Monday. Royal Dutch Shell Plc is trying out the software to control drilling equipment, while Schneider Electric SE is seeing how it works with electric heating and cooling controls for buildings, said Mark Hammond, founder and chief executive officer of Bonsai, who is now a general manager at Microsoft. A Microsoft partner based near that company’s Redmond, Washington, headquarters wants to use it for tractors and Carnegie Mellon University deployed the software as part of a mine-exploration robot that recently won a Defense Advanced Research Projects Agency challenge. Microsoft has also suggested the software could work well for drones that check power lines and wind turbines and for disaster recovery operations where autonomous devices scout out the situations that may not be safe for human rescuers.“The industry is fixated on autonomous driving and that’s it, but if you look around you in the world, you can find literally hundreds and hundreds and hundreds of scenarios where automation can improve things,” said Gurdeep Pall, Microsoft vice president, business AI. “A lot of these folks who build these systems are mechanical engineers, electrical engineers, etc. They are not AI people. We are bringing AI to these engineers in a way that they can operate.”In May, Microsoft began a limited preview of the software that extended to about 50 customers. On Monday at Microsoft’s Ignite conference in Orlando, CEO Satya Nadella will announce an expansion of that program to about 200 companies and likely more after that. The company won’t yet say when it will be broadly available.The software allows engineers to set up rules and criteria for how autonomous devices should operate, anything from where a robot arm should start, what it should do next and all the different possibilities. Then engineers use simulation software — either from Microsoft or its partners — to set up a series of lessons, a digital curriculum. “It’s not randomly exploring, it’s exploring in a way that’s guided by the teacher,” Hammond said. And once you have the curriculum, the system automates the process of teaching and learning, across hundreds or thousands of simulations at the same time. Microsoft partner Fresh Consulting is working with several customers to figure out how to program devices and vehicles with Microsoft’s tools. One such customer is industrial equipment rental company United Rentals, and Fresh wants to use Microsoft’s product to better control compact track loaders, which need to work in uneven terrain and mud. The software can also be useful in construction and warehouse work. “These are dirty, dangerous and dull jobs, and there's not enough people, said CEO Jeff Dance. Microsoft is also partnering with MathWorks Inc., which makes simulation and modeling software used by companies like Toyota and Airbus, to allow its programs to work with Microsoft’s. Microsoft said its autonomous software approach blends the power of human experience with the ability to adapt to changing situations through a type of AI called reinforcement learning. For example, Shell is using the tools to teach its drills. Shell could program drills the old fashioned way, with a series of rules put in by the human experts, Hammond said. But that would require lots of time reprogramming each drill every time it’s used on different terrain. A reinforcement learning system — like those used to teach machines how to play video games better than humans — could learn how to do it alone. But for industrial tasks, reinforcement learning with human knowledge and guidance works better, Hammond said. Without it, systems may come to conclusions that don’t make sense in the real world. Software for factories, equipment and industrial applications is often very specific and made by companies in those industries rather than large, general purpose software makers like Microsoft. And many of those vendors are also working on systems for increasing autonomous control. Microsoft also wants to sell other products, from cloud services to HoloLens augmented reality goggles to construction and industrial firms. Meanwhile its cloud rival Amazon.com Inc. is trying to leverage expertise in logistics and warehouse automation to sell services to industrial companies, said Nick McQuire, an analyst at market research firm CCS Insight. Amazon and Google are also working on AI learning techniques with robots and on programs that promise to enable engineers without AI expertise to program complicated AI models. Rather than try to compete with industrial tech vendors, Microsoft wants to partner with them, Pall said.“It's a big market, but a very difficult one to target in terms of the complexity and the legacy systems, and a lot of those systems are highly mission critical,” McQuire said. “It's going to take some time, but Microsoft is starting to position a lot of its products for it.”Microsoft also made other announcements at the conference including:A new Office mobile app that combines Word, Excel and PowerPoint into one app instead of separate ones. Outlook for iOS will now be able to read a user’s emails out loud and share changes to their day. And now there’s a male voice available instead of Microsoft’s usual female Cortana voice assistant. In a bid to be more helpful, Cortana can now scan users’ email and send a single “briefing” document with all the things they’ve promised to do each day, as well as a summary of meetings and relevant documents. Microsoft’s Azure cloud division is unveiling a new program for data analytics called Azure Synapse Analytics and new technologies for using Azure tools to manage Linux and Windows Servers located in a customers own data centers or multiple clouds. To contact the author of this story: Dina Bass in Seattle at firstname.lastname@example.orgTo contact the editor responsible for this story: Andrew Pollack at email@example.com, Robin AjelloFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
ExxonMobil and Chevron surprised markets with strong third-quarter earnings results on Friday. Their adjusted EPS beat analysts' estimates.
(Bloomberg Opinion) -- The initial sales pitch for Saudi Aramco, the world’s largest initial public offering, was pretty clear when it was launched on Sunday: This company can pay chunkier dividends for longer, and more reliably, than any other big oil major. The hope is that investors will therefore pay a premium for the shares that carry those dividend promises. Whether they do should depend on their attitude to Aramco’s singular strategic profile and emerging-market risks.Saudi Arabia has finally kicked off the long-anticipated share sale, having accepted that the market may not ascribe the $2 trillion valuation Crown Prince Mohammed bin Salman had sought for the kingdom’s state-owned oil producer. While there’s no price range just yet, bankers may target a $1.6 trillion to $1.8 trillion valuation, according to Bloomberg News. Factor in the standard 10% to 15% discount on IPOs, and that is where you would pitch a $2 trillion offering anyway.From a big-picture perspective, this isn’t an immediately enticing IPO, regardless of price. Investors generally aren’t looking to add more oil shares to their portfolios. That’s mainly an environmental issue, but it’s also a reflection of concerns about the longer-term outlook for oil demand as consumers seek lower-carbon alternatives.From a narrowly financial view, though, the attractions are plain. Demand for oil isn’t ending any time soon, the offering lands with no gearing – net debt to total capital — and Aramco’s cash generation is, and will be, prodigious. The oil giant generated $59 billion of free cash flow in the last nine months and plans to pay $75 billion in annual dividends from 2020 to 2024. If dividends are lower, outside investors get their pro-rata share of $75 billion, funded by the kingdom taking less. Tweaks to tax and royalty arrangements also look friendly to outside investors.Aramco has more flexibility than peers to keep the payouts going amid swings in the oil price. It could let net borrowings rise, with a self-imposed gearing ceiling of 15%. It also appears to have more flexibility to turn off capital expenditures without harming its long-term investment case. By contrast, the Western oil majors seem trapped in a tricky balancing act, maintaining dividends and capex even within gearing targets roughly twice as high.In isolation, these dynamics would support the dividend strongly and would justify buying the shares at a premium. At a $1.6 trillion valuation, the yield would be 4.7%, against 4% for Chevron Corp., 5% for Exxon Mobil Corp. and 6% each for Royal Dutch Shell Plc and BP Plc. (Note that Chevron’s yield, adjusted for buybacks, is closer to 6%.)But strategically, there is nothing in Saudi Aramco’s listing materials so far that speaks directly to the anti-fossil fuel movement. At least Royal Dutch Shell Plc aspires to “thrive in the energy transition.” Aramco’s nod to environmental concerns is that its activities in extracting oil are less carbon-intensive than peers’.There are other concerns. Drone attacks on Aramco facilities in September were a reminder that the company resides in a volatile region. Government control brings the risk of decisions being made in the interest of Saudi Arabia, not minorities – for example, if Aramco engages in M&A with other entities controlled by the kingdom. And however much they wish to separate the company from its lead shareholder in their minds, international investors may be wary of co-investing with an repressive regime even if they are told the IPO is part of a reform drive.Local demand, the prospect of a quick dividend after the listing, plus bonus shares for retail investors who keep their stock, may provide some support for the offering and the share price right after listing. Selling 3% of the company would imply an issue of around $50 billion of stock; the world’s top five oil companies are collectively worth $1 trillion. There are investors for Aramco.A “compromise” on valuation and the many inducements here will certainly help. But the shares will succumb to market forces in the end, which will decide whether Aramco’s relative financial strength counts for more than its very different strategic, governance and geopolitical profile compared to the existing listed oil majors.\--With assistance from Liam Denning.To contact the author of this story: Chris Hughes 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.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
According to Carbon Tracker, no major oil company has aligned its operations with the goals set out in the Paris Climate Agreement, and they will all soon have to reduce production significantly
(Bloomberg) -- Saudi Arabia will compromise on valuation to ensure the initial public offering of Aramco is a success.The Kingdom is ready to accept less than the $2 trillion Crown Prince Mohammed bin Salman has long insisted the state oil giant is worth. Bankers will instead target a valuation of $1.6 trillion to $1.8 trillion after the record share sale was given the green light by Prince Mohammed on Friday, according to people briefed on the matter.The willingness to accept a lower valuation shows the prince has put getting the deal done above being proved right on his $2 trillion estimate. The IPO -- a centerpiece of the Vision 2020 plan to transform the Saudi economy -- is still likely to set records, outstripping the $25 billion by Alibaba Group Holding Ltd. in 2015.Aramco is also considering boosting next year’s dividend by a further $5 billion to $80 billion to win over investors, the people said, asking not to be identified before an official announcement.Although Saudi Arabia’s richest families will underpin demand for IPO, expected to start trading in mid-December, bankers are still trying to woo international investors and have invited money managers in London for meetings next week, people said. A boost to the dividend would complement that effort, bringing yields closer, though still below, those paid by oil majors like Royal Dutch Shell Plc and Exxon Mobil Corp.An official intention to float will be made on Sunday, people said, firing the starting gun on a six-week sales campaign before the shares begin trading on the Riyadh exchange in mid-December. Aramco’s press office declined to comment.The partial privatization will be a deal like few others and the biggest change to the Saudi oil industry since the company was nationalized in the 1970s. Aramco, which pumps 10% of the world’s oil from giant fields beneath the kingdom’s barren deserts, is the most profitable company globally and the backbone of the kingdom’s economic and social stability.Grabbing a role in the deal has been one of the most hotly contested mandates for global banks. More than 20 are working on the deal, with the top roles going to firms including Morgan Stanley, Citigroup Inc., Goldman Sachs Group Inc., and JPMorgan Chase & Co.First suggested by Prince Mohammed in 2016, the IPO was delayed several times as international investors balked at his $2 trillion valuation. An earlier plan to kick off the share sale in mid-October was shelved after bankers received lukewarm interest from money managers.To get the deal done, Aramco’s bankers will need hefty contributions from the kingdom’s wealthiest families, many of whom have already been targeted in the 2017’s corruption crackdown that saw scores of rich Saudis detained in Riyadh’s Ritz-Carlton Hotel. Authorities said they raised over $100 billion in settlements from people accused of graft.Local asset managers, including those looking after government funds, have also been asked to make significant contributions, while domestic banks have been told to lend generously so retail investors can buy Aramco shares, according to people familiar with the situation.Aramco must also contend with the strengthening global movement against climate change that’s targeted the world’s largest oil and gas companies. Many fund managers are concerned the shift away from the internal combustion engine -- a technology that drove a century of steadily rising demand -- means consumption of oil will peak in the next two decades.Since Prince Mohammed first mooted the IPO in early 2016, Saudi Arabia and Aramco have re-worked the company’s tax burden to boost profits and hence its appeal to investors. Riyadh first cut the income tax Aramco pays, and more recently it also lowered the royalty the company pays when oil prices are relatively low. The measures boosted the valuation of Aramco, but analysts and investors all but indicated they weren’t enough to reach the $2 trillion.In a bid to further make the stock more attractive, Aramco already announced plans to pay $75 billion in dividends next year. It’s now considering raising that to $80 billion. At $1.8 trillion that would mean a yield of 4.4%, a decent payout in a low-interest-rate world, but still lower than the 5% Exxon investors currently get.Aramco is still holding meetings with its bankers to nail down the details of the offer, and the dividend plan and the valuation could still change.Investors who buy into the IPO have been guaranteed that the dividend won’t fall until after 2024, regardless of what happens to oil prices. Instead, Aramco will cut back on payouts to the government if it has to reduce the total dividend.(Adds story tout.)\--With assistance from Melissa Cheok.To contact the reporters on this story: Matthew Martin in Dubai at firstname.lastname@example.org;Dinesh Nair in London at email@example.com;Archana Narayanan in Dubai at firstname.lastname@example.org;Javier Blas in London at email@example.comTo contact the editors responsible for this story: Will Kennedy at firstname.lastname@example.org, Lars PaulssonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.