In the deepwater vs shale oil contest, Shell backs both

The logo of energy giant Royal Dutch Shell is pictured on pumps at a petrol station in London. (AFP)
Updated 20 February 2018
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In the deepwater vs shale oil contest, Shell backs both

LONDON: Royal Dutch Shell will expand deepwater output and turn a profit from its shale production in coming years as both together will help the oil major cope with a world of low crude prices, the head of its oil and gas production said on Tuesday.
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.


Thyssenkrupp workers urge thoroughness over speed in Tata Steel talks

Updated 52 min ago
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Thyssenkrupp workers urge thoroughness over speed in Tata Steel talks

FRANKFURT/DUISBURG: Thyssenkrupp workers on Thursday urged management to solve outstanding issues in talks with Tata Steel to create a European joint venture, signaling they would not be opposed to a further delay of the transaction if necessary.
The remarks come as Thyssenkrupp Chief Executive Heinrich Hiesinger finds himself under pressure from all sides to present a deal that will satisfy employees and investors, which have grown increasingly frustrated with the lengthy negotiations.
“There are still a number of unresolved issues until a possible signing,” Tekin Nasikkol, chairman of Thyssenkrupp Steel Europe’s works council and a member of Thyssenkrupp AG’s supervisory board, said in a statement.
“We expect all parties to focus on diligence rather than speed in fixing the problems.”
Talks to create a European steel joint venture have dragged on for more than two years and have hit a snag after the diverging performance of the two businesses prompted Thyssenkrupp’s activist shareholders Elliott and Cevian to ask for better terms.
Hiesinger has several options to address the valuation gap and is seeking approval for the venture from Thyssenkrupp’s 20-member supervisory board, where half of the seats are held by labor representatives, by the end of next week.
“If Mr. Hiesinger needs more time he can have it as far as I’m concerned,” Nasikkol said.
Hiesinger’s options range from changing the 50-50 ownership structure, possibly to 55-45 or 60-40 in favor of Thyssenkrupp, transferring more Thyssenkrupp debt onto the venture, excluding Tata Steel from dividend payments or securing a cash payment from the Indian firm to settle the difference.
Nasikkol confirmed labor leaders would not support the venture taking on more debt. So far, Thyssenkrupp plans to transfer €4 billion ($4.6 billion) in liabilities, compared with Tata Steel’s €2.5 billion.