In the deepwater vs shale oil contest, Shell backs both
In the deepwater vs shale oil contest, Shell backs both
Shell's deepwater production in Brazil, Nigeria, the Gulf of Mexico is much bigger and more profitable, but the firm sees the nimble, fast-returns U.S. onshore shale as an engine for growth.
"We can see strong (shale) production growth, strong cash surpluses that gives us a balance in our portfolio where you can ramp investment up and down, you can moderate that, very unlike deepwater which is quite chunky," Andy Brown told Reuters in an interview on the sidelines of the IP Week conference.
"They sit nicely together in a portfolio."
Now, mammoth deepwater projects and smaller shale fields both compete for Shell's tightly-controlled capital and could generate profits with oil as low as $40 a barrel, Brown said.
Benchmark Brent crude is now trading at about $65, up from below $30 at the start of 2016.
Following Shell's $54 billion acquisition of BG Group in 2016, the Anglo-Dutch company became a major player in deep water, which is set to produce 900,000 barrels of oil equivalent per day (boed) by the end of the decade, roughly a fifth of Shell's total output. Today, it produces about 750,000 boed.
Shell made its deepwater goals clear when it swept up nearly half the Gulf of Mexico oil and gas blocks awarded in a Mexican auction in January, months after picking up Brazilian blocks.
The offshore business was set to generate $6 billion to $7 billion a year in free cash flow in the next three years, roughly a quarter of Shell's total free cash flow, Brown said.
"The aim is to get it (the cash generation) and sustain it through the next decade," he said.
Shell aimed to approve several new deepwater developments this year, including Vito in the U.S. Gulf of Mexico and Bonga Southwest in Nigeria, he said, adding it would also work on plans to develop its Gulf of Mexico Whale discovery.
Brown has overseen a sharp reduction in development costs in recent years with the help of new technology and by simplifying designs to make projects profitable at lower oil prices.
But Shell, along with others such as Exxon Mobil and Chevron, has invested heavily in the shale businesses, lured by lower development costs and quicker start up.
Shell still did not generate a profit from its shale activities, much of it focused in the Permian basin in west Texas and New Mexico, but aimed to break even by 2019, a year earlier than originally planned, Brown said.
"We had an ambition to get cash flow positive in 2020, we accelerated that to 2019. There are circumstances we can be cash flow positive this year," Brown said.
Shell would increase its shale output to 200,000 barrels of oil equivalent per day (boed) by 2020, he added.
SABIC prepares to meet investors to offer bond
- The Kingdom’s petrochemical giant will be meeting investors in London, New York, Los Angeles and Boston from Sept. 25
- SABIC has also confirmed the appointment of BNP Paribas and Citigroup as global coordinators on the sale
LONDON: Saudi Basic Industries Corp. (SABIC) is preparing to offer its dollar-denominated unsecured bond to the global market with investor meetings due to start this week.
The Kingdom’s petrochemical giant will be meeting investors in London, New York, Los Angeles and Boston from Sept. 25, according to a filing on the Saudi stock exchange on Tuesday.
The Saudi company is likely to be keen to tap into the heightened international interest in the Kingdom’s financial markets following the lifting of some restrictions on foreign investors’ activities at the start of the year.
SABIC has also confirmed the appointment of BNP Paribas and Citigroup as global coordinators on the sale, alongside HSBC Bank, Mitsubishi UFG Securities EMEA and Standard Chartered Bank acting as joint lead managers, in its Tadawul note.
The proposed issuance has been well-received so far by analysts with ratings agency Moody’s Investor Service assigning an ‘A1’ rating to the proposed senior unsecured notes to be issued by the financial vehicle, referred to as SABIC Capital II, and guaranteed by SABIC itself.
“SABIC’s A1 rating reflects its strong business position in the chemical sector and its ability to weather industry volatility, particularly given its healthy operational cash flows and conservative liquidity profile,” said Rehan Akbar, a senior analyst at Moody’s, in a note on Monday.
The bond is anticipated to be used in part to refinance an existing SR11.3 billion ($3 billion) one-year bridge loan raised in January this year to fund the company’s 24.99 percent stake in the Swiss chemical company Clariant, according to the Moody’s note. All regulatory requirements were completed on this acquisition earlier this month.
Cash proceeds from the bond may also be used to repay a $1 billion bond due on Oct. 3, according to Moody’s.
On Tuesday SABIC confirmed that the bond will be used mainly to refinance “outstanding financial obligations” of the company and its subsidiaries.
Analysts at rating agency S&P Global were also upbeat about SABIC’s outlook, with research published on Monday stating that the company has “strong profitability” via its KSA operations and a “strong” liquidity position.
“The debt issuance is helpful for the credit profile in the sense that it extends the company’s debt maturity profile and strengthens its liquidity position,” said Tommy Trask, corporate and infrastructure credit analyst at S&P Global.
The agency currently assigns the petrochemical firm an ‘A Minus’ rating, with a “stable outlook,” which it said reflects its “view on the sovereign as well as its expectations that SABIC will maintain high profitability under current benign industry conditions.”
S&P Global’s report said margins in the global chemical industry will “largely stabilize in 2018 following several years of improvement, attributable to the increase in commodity chemical capacity.”
However, it also warned that a key risk to credit quality is
the trend for mergers and acquisitions within the sector and the “potential negative impact on credit metrics from funding them with debt.”