Shell Boosts 2Q Earnings, Eyes US Sanctions, Qatar Chances
Shell posted a strong increase in second quarter net profits on July 27, up 31% year on year at $1.545bn, as it said it was monitoring carefully the progress of US sanctions against Russia and Iran, and regional security in Qatar, plus moves to impose a lower cap on its Dutch gas production.
Its CEO Ben van Beurden also said Shell is "willing to add its strength" to any future Qatari LNG expansion opportunities.
Current cost of supply (CCS) earnings in 2Q2017 excluding exceptionals -- Shell's preferred method of indicating business performance -- were $3.6bn, up 245%, reflecting strong downstream oil performance. Inclusive of exceptionals, CCS earnings increase was even higher at +703% to $1.92bn.
Shell said its earnings also benefited from higher Upstream and Integrated Gas contributions, which benefited from higher realised prices and increased production from new fields, which offset the impact of reduced volumes from Pearl gas-to-liquids (GTL) in Qatar which was on maintenance.
Van Beurden said that Pearl (capacity 140,000 b/d) is now back fully on stream.
Shell’s capital investment in 2017 is now expected at $25bn, added van Beurden, so at the lower end of its expected annual 2018-20 range – thanks to post-sanction cost reductions on new projects.
Upstream output grew by 2% year on year to 2.672mn barrels of oil equivalent/day in 2Q2017, of which 1.626mn b/d was liquids (up 7%), and the remaining 6.064bn ft³/d gas (down 5%). New field start-ups and the continuing ramp-up of existing fields, in particular oilfields in Brazil, plus Kashagan in Kazakhstan, and Stones in the US Gulf, contributed some 184,000 boe/d to production, compared with 2Q 2016.
However upstream exceptionals included $695mn of impairments, mainly related to the divestments of Shell’s oil sands interests in Canada and Shell Ireland (Corrib), and a charge of $183mn related to the impact of the weakening Brazilian real on a deferred tax position.
Van Beurden said that Shell was continuing to monitor the situation carefully in Qatar but added: “I don’t see any operational issues at the moment." He said Shell was “in close contact with Qatar Petroleum”.
Shell 'willing' for role in Qatar LNG expansion
Asked by NGW about recent Shell contacts with QP on the latter's plan to expand LNG production by 30% to 100mn mt/yr in the next 5-7 years, Shell's CEO said it makes sense for QP to open up a new tranche of North Field gas production.
"It's early days on the expansion [...but] we'd be willing to add our strengths, bringing new markets to Qatar, and bringing our up- and midstream capabilities.... The ball is in QP's court," said Van Beurden, acknowledging that, were further Qatar LNG projects to join Shell's future capex pipeline, it could force other weaker Shell LNG projects down the company's priority list for development.
On Integrated Gas, Shell’s LNG sales volume increased 13% to 16.08mn metric tons, of which equity liquefaction volume was up 7% at 8.09mn mt. Compared with the second quarter 2016, LNG liquefaction volumes mainly reflected the start-up of Chevron-operated Gorgon in Australia and lower maintenance, partly offset by lower feedgas availability mainly at QGLNG, also in Australia.
Shell said it agreed to buy Chevron’s interests in Trinidad & Tobago, including offshore East Coast Marine Area Blocks 6b, 5a and E.
Impact of Groningen
In its outlook for 3Q 2017, Shell said Integrated Gas production volumes are expected to be up 60,000 boe/d year on year, mainly thanks to Gorgon, but upstream to be down by some 190,000 boe/d mainly due to completed divestments, but also down by 40,000 boe/d due to lower Groningen gas field production in the Netherlands, and by 30,000 boe/d due to higher maintenance – offset by 90,000 boe/d thanks to restored production in Nigeria.
Van Beurden said that Shell’s NAM joint venture with Exxon at Groningen has been put in an “impossible situation” by the Dutch ministry and regulators’ position that there might be no safe production level at the onshore field, which was why NAM had challenged the latest decision to cut the Groningen cap by 10% to 21.6bn m³/yr from October 2017. He said it was not a challenge to the 10% per se, but more the rationale behind it.
Eye to US sanctions
Van Beurden said Shell was closely following draft US sanctions bill against Russia, adding: “If it impacts us, we will comply with whatever that is. At the moment, we have an authorisation from the Dutch government to work on Nord Stream 2, and are fulfilling our commitment under that financing arrangement as much and as well as we can.”
Mark Smedley