Shell flags return to output growth as demand headwinds weigh

MOSCOW (MRC) -- Shell expects to see its oil and gas production return to growth in the current quarter, after a hiatus in the third quarter, the oil major said Thursday, despite flagging macroeconomic threats to its key cash flow target, reported S&P Global.

Reporting stronger-than-expected third-quarter earnings, Shell said it expects its total upstream production to average 3.57 million-3.77 million b/d of oil equivalent in the fourth quarter.

The upside potential would mark a 6% increase from Q3 levels of 3.56 million boe/d but a 6% fall from Shell's Q4 2018 production of 3.79 million boe/d.

Europe's biggest oil major reported non-LNG linked upstream production slipped 2% year on year to 2.61 million boe/d during Q3, while its integrated gas business saw output grow 4% on the year to 957,000 boe/d. Combined, Shell's 3.56 million boe/d of production in the quarter was 1% lower on the year after asset sales, weaker performance in the Gulf of Mexico and Norway, and higher maintenance offset rising LNG output.

Shell's LNG sales in the third quarter rose 9% year on year to 18.90 million mt, and liquefaction volumes 9% to 8.95 million mt, a level expected to average 8.8 million-9.4 million mt in the fourth quarter.

Shell's adjusted Q3 earnings excluding one-time items fell 15% on the year to USD4.8 billion, reflecting the lower production and weaker oil and gas prices. The result was 23% above consensus forecasts of USD3.9 million for the period on a stronger LNG segment and trading earnings.

"This quarter we continued to deliver strong cash flow and earnings, despite sustained lower oil and gas prices, and chemicals margins," Shell's CEO Ben van Beurden said in a statement. "Our earnings reflect the resilience of our market-facing businesses and their ability to capitalize on market conditions, including very strong trading and optimization results this quarter."

Despite the earnings beat, Shell said concerns over the health of the global economy are threatening to delay its plans to cut debt and boost shareholder returns.

If current oil prices of around $60/b continue into 2020, gas prices remain week and refining and chemical margins remain at current levels, Shell's cash flows could suffer to the tune of up to $9 billion next year, Shell's chief financial officer Jessica Uhl said a quarterly earnings call. (See story 1402 GMT).

"Softening demand in terms of the pace of oil growth is being experienced, and that's playing into sentiment in the oil and gas sector, and certainly, prices in the oil and gas sector," Uhl said.

Looking ahead, Uhl said Shell remains upbeat over its growth prospects, underpinned by further developing its gas-rich upstream portfolio and emerging power sector business.

"We have further opportunity to increase cash flow with the ramp-up of some sizable projects, so overall the fundamentals for the company are very strong," Uhl said.

Shell - which does not issue oil and gas production targets -- said it was looking to grow its deepwater, shale and conventional oil and gas businesses. The company also wants to further develop its integrated gas, chemicals and fuels business.

Upstream growth in the short term will come from growing volumes from Shell's giant Prelude LNG project off Australia and its Appomattox field in the US Gulf which are both ramping up.

Uhl said Shells expects its capital spending to end the year at the lower end of its guidance range but confirmed Shell's "flexible" USD24-USD29 billion capex range for 2020.

"The messaging that we're sending today is just signaling prudence that we can see some headwinds and that we want to manage that effectively," Uhl said.

Downstream, Shell posted a 51% jump in segment earnings supported by stronger refining, trading and marketing results. Refining and trading earnings of $448 million in the quarter reflected higher contributions from oil products trading, mainly fuel oil, partly offset by lower realized refining margins.

"(After) very low refining margins in Q2, (we had) a little bit of a bounce back in Q3. But again, in terms of the fundamentals of the sector and the outlook, it's quite possible that we will not get to mid-cycle margins in the refining sector," Uhl said.

In the fourth quarter, Shell said it expects refinery availability to be between 87%-92%, compared with 92% in the third quarter.

As MRC wrote before, in mid-October, Royal Dutch Shell Plc restarted the hydrocracker at its 225,300 barrel-per-day (bpd) Norco, Louisiana, refinery. The 40,000 bpd hydrocracker was shut on Sept. 9 for a planned month-long overhaul. A longer than expected restart of the unit stretched the outage to six weeks, the sources said.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polyprolypele (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,589,580 tonnes in the first nine months of 2019, up by 7% year on year. Shipments of all PE grades increased. The estimated PP consumption in the Russian market was 976,790 tonnes in January-September 2019, up by 4% year on year. Shipments of PP block copolymer and homopolymer PP increased.

Royal Dutch Shell plc is an Anglo-Dutch multinational oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the biggest company in the world in terms of revenue and one of the six oil and gas "supermajors". Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading.
MRC

MOSCOW (MRC) -- Global plastics and rubber machinery industry sales are projected to drop 10% this year and 5% in 2020, said European-rubber-journal.

That’s according to European and German plastics and rubber machinery industry trade associations, speaking at K 2019. The Euromap association, an umbrella group of nine national European plastics and rubber machinery trade groups, projected that global sales for the machinery sector will drop 10% to EUR33.1bn this year, with a further 5% fall to EUR31.5bn in 2020.

Sales reached EUR36.8bn worldwide in 2018. "At the bottom line, we want to say that not only will we have a challenging 2019, but 2020 will be challenging, too," said Thorsten Kuhmann, secretary general of Euromap.

The group estimates that sales in the Euromap region will also drop 10% this year to €14bn and fall another 5% in 2020 to EUR13.3bn. Germany and Italy will face similar declines, it estimated, with German plastics machinery sales dropping from EUR7.9bn in 2018 to €6.7bn next year. Italy is projected to see a drop from EUR2.9bn last year to EUR2.5bn in 2020.

Euromap President Luciano Anceschi said several factors were leading to the global slowdown in machinery sales, after a decade-long streak of growing sales: a declining auto market worldwide, the trade conflict between the United States and China, Brexit, and environmental questions around plastics.

He noted drops in exports to major markets from Europe. Euromap projects machinery exports from the 28 European Union nations to the rest of the world will fall 7.5% this year, 6.4% to the United States and 12% to China.

Anceschi did put that drop in a broader perspective, saying that during the growth streak in the European plastics machinery industry, production had risen 59% since 2010. Other machinery executives also said public questions around plastics waste and sustainability are hurting the industry's bottom line.

Ulrich Reifenhauser, chairman of the VDMA Plastics and Rubber Machinery Association, told journalists that those concerns are leading to deselection of plastics in other industries, like consumer goods.

"The tendency to replace plastics is fairly strong," said Reifenhauser, who is also chief sales officer of German extrusion machinery maker Reifenhauser GmbH & Co. KG Maschinenfabrik. "I don't like that, because I like to see growth and I like to sell machines and there are good reasons to take plastics. "It's the real and bloody situation; it's the potential to lose business, to lose basis, for machine selling," he said.

Major consumer product companies have announced moves away from plastic. For example, PepsiCo Inc. said in September it wanted to reduce the amount of virgin plastic used in beverage packaging by one-third by the middle of the next decade. Unilever Plc said in early October it wanted to cut virgin plastics use in half by 2025.

Still, machinery executives did say they see some opportunities for plastics in discussions about the circular economy and sustainability.

As MRC informed earlier, Russia's output of products from polymers rose in September by 5.2% year on year. However, this figure increased by 1.7% year on year in the first nine months of 2019. According to the Russian Federal State Statistics Service, September production of unreinforced and non-combined films was slightly over 107,300 tonnes, compared to 110,000 tonnes a month earlier. Output of films products grew in January-September 2019 by 9.1% year on year to 893,000 tonnes.

MRC

MOSCOW (MRC) -- Saudi Aramco left plenty of unanswered questions regarding its delayed initial public offering that was approved Sunday, and despite incentives offered to investors, analysts say the oil giant will not come close to the kingdom's desired USD2 trillion valuation, reported S&P Global.

The size and price of the Aramco local IPO will depend on the investor road-show and book-building process, Saudi Aramco officials said on Sunday.

Crown Prince Mohammed bin Salman, the mastermind behind the IPO, has previously valued Aramco at $2 trillion and said the kingdom wants to offer up to 5% of the company, making the upcoming flotation the world's biggest and beating the current leader Chinese e-commerce giant Alibaba's $25 billion offering in 2014.

"It appears that there has now been a compromise on the valuation with whisper numbers for the pricing range between USD1.6 trillion and USd1.8 trillion," said Tarek Fadlallah, CEO of Nomura Asset Management Middle East.

"This puts the dividend yield in the ballpark of other major oil companies although it still leaves the expected price to earnings at a premium. Aramco is suggesting that any premium would be justified by its competitive strengths."

Aramco announced its intention to grant aggregate ordinary cash dividends of at least USD75 billion for 2020, in addition to any potential special dividends. On November 1, Aramco declared an ordinary dividend of USD13.4 billion for the third quarter of 2019, it said on Sunday.

"Valuing Aramco is a challenging task and ultimately the market will determine the best valuation for the company," said Ellen Wald, president of Transversal Consulting and author of "Saudi, Inc.," a history of the Saudi oil industry.

"I think the most appropriate valuation will fall somewhere in the USD1.2 trillion to USD1.6 trillion range."

Aramco and the Saudi government have taken measures to entice both local and foreign investors to subscribe to the IPO.

The Capital Market Authority has allowed non-resident institutional foreign investors to subscribe to the Aramco shares in the IPO as qualified foreign investors under certain conditions, Aramco said on Sunday. In 2018, the regulator eased rules for QFIs, who can directly buy shares of Saudi stocks, to help attract foreign investments.

Saudi nationals will be eligible for bonus Aramco shares under certain conditions, the company said.

"Undoubtedly the 10% bonus share incentive offered to local retail investors holding Aramco shares for more than 180 days is a positive surprise that will help attract domestic participants," said Fadlallah.

Aramco said on Monday it posted $68 billion in nine-month net profit, an 18% decline from the year-earlier period. Analysts said the company's profitability and dividend policy will be attractive to investors.

"I think it's a stock that is going to appeal initially to income-seeking investors just given that strong payout ratio and dividend," said Neil Beveridge, Bernstein Research senior analyst.

"We have got a much clearer understanding of the fiscal regime that Aramco is going to be operating under and the nine-month results look pretty strong on cash flow basis. It is going to be down to investors to look how Aramco stacks up relative to the rest of global majors."

Bernstein values Aramco between USD1.2 and USD1.5 trillion.

Aramco's profitability, the world's largest, will be a key incentive for investors to snap up shares in the IPO, according to analysts.

The company posted a net profit of USD111.1 billion in 2018, but is expected to report reduced profit this year due to lower oil prices in 2019 vs 2018. Last week, BP reported a 41% fall in third-quarter underlying replacement cost profit to USD2.25 billion, reflecting lower oil and gas prices, maintenance and weather impacts.

"Particularly in today's IPO scene, which is dominated by tech companies that often aren't making a profit and have no foreseeable projections to make a profit, Aramco really stands out," Wald said.

"Potential investors will surely compare Aramco's Q3 results to the largely disappointing Q3 results that other big oil companies released last week. The fact that Aramco is on track to make less profit this year than last year shouldn't detract from the company's incredible profitability."

As MRC informed earlier, Saudi Aramco, which temporarily lost half of its oil production following the September 14 attacks on two key oil facilities, is running its local refineries at full capacity and is forging ahead with plans to start up new refineries. The company is also starting up a joint venture refinery in Malaysia next year. According to Aramco's bond prospectus released in April, the refining and petrochemical joint venture with Petronas - the Malaysian national oil company - collectively known as PRefChem, was supposed to start this year.

The PRefChem joint venture includes a 300,000 b/d refinery, an integrated steam cracker with capacity to produce 1.3 million mt of ethylene located in Johor, Malaysia. Aramco was supposed to provide a significant portion of PRefChem's crude supply under a long-term supply agreement. Jazan and PrefChem will help Aramco reach a gross refining capacity of 5.6 million b/d, it said in the prospectus. The company currently owns and has stakes in four refineries abroad with a total refining capacity exceeding 2 million b/d.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polyprolypele (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,436,390 tonnes in the first eight months of 2019, up by 9% year on year. Shipments of all PE grades increased. At the same time, the PP consumption in the Russian market was 909,260 tonnes in January-August 2019, up by 10% year on year. Shipments of PP block copolymer and homopolymer PP increased.

Saudi Aramco is an integrated oil and chemicals company, a global leader in hydrocarbon production, refining processes and distribution, as well as one of the largest global oil exporters. It manages proven reserves of crude oil and condensate estimated at 261.1bn barrels, and produces 9.54 million bbl daily. Headquartered in Dhahran, Saudi Arabia, the company employs over 61,000 staff in 77 countries.
MRC

MOSCOW (MRC) -- Covestro closed the sale of its European Systems Houses business to private equity firm HIG Capital on 1 November, said producer.

Covestro successfully closed the sale of its European Systems Houses business to H.I.G. Capital effective as of November 1, 2019. The sales proceeds amount to a high-double-digit euro million sum. The business comprises facilities in the Netherlands, Denmark, Spain, Germany and further businesses in Italy. Approximately 250 employees are generating annual sales of some EUR 230 million. The sale of the systems houses is part of Covestro’s ongoing efforts to optimize its portfolio.

The systems houses are offering tailor-made polyurethanes systems for customers. With its new owner H.I.G. Capital, the European Systems Houses now have the perspective to position themselves as an independent, focused player for mid-sized customers. The newly formed business will trade under the name Plixxent.

As per MRC's ScanPlast, Overall imports of Covestro"s PC granules to the Ukrainian market grew in the first three quarters of 2019 by 52% year on year. Thus, this figure increased from 1,400 tonnes in January-September 2018 to 2,100 tonnes. Covestro's material accounted for 69% of the total PC imports to the country in the first nine months of 2019 versus 54% a year earlier. Company"s shipments of material to Ukraine were 231 tonnes last months, compared to 139 tonnes in September 2018.

With 2018 sales of EUR 14.6 billion, Covestro is among the world’s largest polymer companies. Business activities are focused on the manufacture of high-tech polymer materials and the development of innovative solutions for products used in many areas of daily life. The main segments served are the automotive, construction, wood processing and furniture, and electrical and electronics industries. Other sectors include sports and leisure, cosmetics, health and the chemical industry itself. Covestro has 30 production sites worldwide and employs approximately 16,800 people (calculated as full-time equivalents) at the end of 2018.
MRC

MOSCOW (MRC) -- Mexican petrochemical company Alpek has signed a deal to fully acquire a British plant from Lotte Chemical UK Limited, reported Reuters with reference to Alpek's statement.

The plant, a unit of South Korea’s Lotte Chemical, has the capacity to produce 350,000 tonnes of polyethylene terephthalate (PET) per year and is located at Wilton, Teesside.

Alpek, which did not disclose the purchase price, said the transaction will be finalized by the end of this year.

Alpek is the petrochemicals unit of Mexican conglomerate Alfa.

As MRC wrote before, in early May 2018, Alpek concluded the purchase of PET producer Petroquimica Suape (PQS) for USD385 million. Previously owned by Brazil's Petrobras, PQS owns a 700,000 mt/year PTA plant as well as a 450,000 mt/year PET plant in Ipojuca, Pernambuco, Brazil. After the acquisition, Alpek owns all these assets as well as Citepe - a polyester unit. Alpek already owns Mexico’s polypropylene producer Indelpro and DAK Americas, which produces PET in the US, Mexico, Canada and Argentina.

According to MRC's ScanPlast report, Russia's estimated PET consumption dropped in September 2019 by 10% year on year, totalling 58,210 tonnes. Overall, 551,320 tonnes of PET was processed in Russia in the first nine months of 2019, up 9% year on year.

Established in 1976, Lotte Chemical has been solidifyng its position by localizing cutting-edge petrochemical technologies. Among the high-quality products produced by Lotte Chemical through its efficient processes are ethylene, HDPE, LDPE, LLDPE, PP, functional resin, EG, SM, PIA, PET, etc. Lotte Chemical’s products are being distributed to 152 countries around the world. With the acquisition of Pakistan’s PTA in 2009, Artenius in the UK in 2010 and Titan Chemical Corp., Lotte Chemical is now able to efficiently supply excellent products to an increasing number of countries. The company is further accelerating its efforts to strengthen its global competitiveness by establishing overseas branches in Hong Kong, Russia, and USA, along with the sales corporation in China for active sales activities both in domestic and abroad.
MRC