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It doesn't get enough attention outside the energy world, but Shell now has a markedly different model to the other oil majors -- and it's not just or even *mainly* about gas
There's still a lot of ballyhoo about Shell's pivot to gas since the BG takeover etc but iirc the oil/gas mix in its production isn't that much different from eg. Exxon.
The much more interesting thing is how the whole company has been turned into a cash cow.
The much more interesting thing is how the whole company has been turned into a cash cow.
Their reserve replacement ratio is the lowest among oil majors, ~50%. If you want your oil reserves to sustainably continue current output rates you need 100% minimum reserve replacement.
Normally when an oil company is depleting its reserves twice as fast as it's adding to them you'd expect a certain amount of alarm (especially when it can't be put down to weak prices causing high-cost reserves to be written off). The oil is literally running out! (slowly)
You'd expect corporate presentations to emphasize the company's peerless exploration team, major prospective new discoveries, impressive acreage -- just anything that will imply the reserve base will soon go up.
That doesn't seem to be what Shell is doing.
That doesn't seem to be what Shell is doing.
Instead they're emphasising their great cash generation, returns to shareholders, positive free cash flow, and role in the energy transition.
Sure, they have projects coming online, but they seem pretty relaxed about a reserve base that's set to run out by 2027
Sure, they have projects coming online, but they seem pretty relaxed about a reserve base that's set to run out by 2027
Three theories about this:
1. I'm reading too much into it. I'm not a credentialed Shell-watcher. But those reserve replacement numbers do seem mighty low.
2. They're making a virtue of necessity. Capex is still pretty high, ditto cost of marginal barrels added to reserves...
1. I'm reading too much into it. I'm not a credentialed Shell-watcher. But those reserve replacement numbers do seem mighty low.
2. They're making a virtue of necessity. Capex is still pretty high, ditto cost of marginal barrels added to reserves...
...ie their future geological reserve base is weak and the best spin they can put on it is that their current reserves are throwing off lots of cash that they'll give to shareholders.
Which leads to...
Which leads to...
3. They're sincerely behaving as if the petroleum industry is ex-growth. Demand is peaking in the next decade, and the best thing to do given a very uncertain energy future is hand the cash back to shareholders...
...If anyone is going to make the wrong bet on an energy sector being transformed by renewables and EVs, let it be shareholders, not Shell management. (ends)
