After posting strong Q4 results for 2018, Royal Dutch Shell wrapped up the year in fine form, boasting strong cash flows and overall debt reduction in a volatile oil price environment.
The company has had to realign and simplify its global portfolio following the $52 billion acquisition of BG Group in 2016. Shell has actively leveraged off BG’s producing Brazilian fields to expand its South American upstream footprint but also shed a number of costly projects such as Canadian oil sands and ageing United Kingdom fields.
Exceeding its original divestment target of $30 billion by 2018, Shell is poised for growth through to 2020 and is looking to expand its deepwater, Liquefied Natural Gas (LNG) and unconventional businesses, although it is targeting additional divestments of around $5 billion per year in 2019 and 2020.
Source: Upstream Analytics, GlobalData Oil and Gas
Total production remained relatively flat in 2018 from 2017 levels, meanwhile, year-on-year production growth for the company is expected in the near term.
Permian Basin production is set to grow to over 250,000 barrels of oil equivalent per day in 2020 on the back of an aggressive drilling outlook and increased capital expenditure forecasts.
Over the next couple of years, significant growth is expected from the onshore unconventional space. It is likely that merger and acquisitions activity could play a vital role in Shell’s aggressive growth in the Permian and US unconventional sector.
Growth in the Permian unconventional business requires relatively little upfront capital, with quick payback periods and relatively low breakeven at $40 per barrel.
These short cycle projects can support cash flow in the near term and enable the company to support longer-term investments such as deepwater developments and LNG distribution.
These larger scale projects are forecast to contribute significant growth to Shell’s portfolio over the next decade. The Integrated Gas and LNG business aligns well with the demand for global energy and it is likely this portion of the business will continue growing in relevance, helping the company define itself against its big oil peers.