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Decarbonization with Profit: Strategy Revealed by Shell's New Energies US CEO
10/10/2023
- Shell aims for reduced emissions with economic, social, and environmental viability.
- Despite concerns, Shell commits to steady oil output through 2030.
- Targeting net-zero by 2050, Shell plans $10-$15 billion investments in low-carbon tech by 2025.
- Facing challenges, Shell diversifies with acquisitions and major European renewable projects.
Energy firms like Shell are facing the challenge of delivering cost-effective energy, reducing emissions, and enhancing shareholder value.
Shell pursues its 2050 net-zero emission target, Wright highlighted the company's efforts to deliver greener energy solutions in line with increasing demand. This includes reconfiguring its energy and chemical facilities and earmarking between $10 billion to $15 billion for investment in low-carbon sectors by 2025.
"In my business, we will continue to invest in power opportunities, but we will do so in areas and spaces where it makes economic sense and where we are incentivized to do so."
— Glenn Wright, CEO of Shell New Energies US
Shell remains committed to maximizing value while minimizing emissions, stated Glenn Wright, CEO of Shell New Energies US, addressing recent concerns about the company's stance on energy transition.
Wright emphasized, during an event on October 5, the necessity of approaches that balance economic viability, social acceptance, and environmental sustainability. He underscored that failure in any of these areas jeopardizes their overall strategy, with the overarching goal being profitable decarbonization.
In response to speculation about reduced renewable investments, Shell confirmed its plan to maintain its oil output until 2030, highlighting its achievement in meeting a revised production target ahead of schedule due to divestments.
Shell's Energy Strategy
Energy firms, such as Shell, are working to deliver affordable energy, reduce emissions, and ensure shareholder returns. They face challenges from inflation and supply chain disruptions, particularly in the offshore wind sector.
Shell has redirected from certain wind projects off Ireland but continues to make strategic investments. These include acquiring Nature Energy, a renewable gas company, and Sprng Energy, a solar and wind energy provider. They've begun building a significant renewable hydrogen plant in Europe. Shell maintains its oil and gas production alongside these renewable ventures.
The Future of Capital Investment in Energy
“We must find ways to profitably decarbonize. I cannot emphasize that enough. We aim to decarbonize, but we must do so profitably. And we must work closely with others in new ways because we can only reach net zero if society reaches it, too.”
— Glenn Wright, CEO of Shell New Energies US
LaMotte, Senior Managing Director at Guggenheim Securities, emphasized that deciding where to allocate capital is a prevailing concern in today's boardrooms. Highlighting E&Ps' cautious capital investments and their strategies to reduce debt and distribute dividends, LaMotte stressed the importance of firms prioritizing their fundamental assets.
He also underscored the significance of fostering enduring value. Despite varied opinions on the speed of industry transition, LaMotte noted that the shift is underway. He advocated for businesses to pivot their foundational strengths towards emerging energy sectors.
A case in point is Occidental Petroleum Corp.'s endeavors in carbon management.
LaMotte also pointed out the need to perceive apparent business liabilities or regulatory costs as potential avenues for growth. He acknowledged the enduring relevance of foundational assets in this dynamic landscape.
LaMotte emphasized that investments should not only be financially sound, prioritizing shareholder returns, but also environmentally conscious. The challenge lies in harmonizing the safeguarding of foundational assets with the pursuit of greener, innovative solutions to maintain a competitive edge.
Wright highlighted that by 2050, with the global population projected to surpass 9 billion—an increase of almost 2 billion from the current count—the demand for energy is set to double.
Shell's Renewable Pursuits and the Challenges
Notably: some U.S. power grids, including Texas' Electric Reliability Council, faced challenges this past summer due to soaring demand and temperatures, leading to conservation warnings.
“As we see more and more renewables come onstream, we need more and more resources that can provide ancillary services that can help firm those renewables and ensure that the grid continues to operate.”
— Glenn Wright, CEO of Shell New Energies US
Wright believes the power sector will witness the most significant transformation and rapid expansion. In line with this, Shell has fortified its stance in the renewables arena. This was marked by its 2021 acquisition of Savion, a prominent solar and battery storage developer, and the inauguration of its residential retail venture in Texas in 2022. Currently, the firm oversees over 8 gigawatts of power generation throughout North America.
Wright emphasized, "Electrification is the most straightforward route to decarbonization. Every segment that consumes energy, from transportation to residential and commercial temperature control, to industrial manufacturing, is leaning towards electrification."
Wright, like many in the sector, advocates for systemic reforms, especially in enhancing connectivity and overhauling transmission, as the queue for renewable energy integration into the grid grows.
He mentioned, "FERC Order 2023 is a step in the right direction. Its implications will evolve, but it aims to expedite the integration of renewables." He added, "It's crucial that our market structure promotes resource sufficiency. While advocating for renewable development is essential, the strategic positioning of these resources is pivotal."
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Diamondback's Viper Energy Acquires $1 Billion in Royalty Interests in the Permian Basin
Viper Energy's deal, comprised of cash and equity, secures an additional 2,800 net royalty acres in the Midland Basin and 1,800 in the Delaware Basin. Viper Energy Partners LP, a Diamondback Energy Inc. subsidiary, has inked a deal to acquire mineral and royalty interests in the Permian Basin. The deal, valued at around $1 billion, is with Warwick Capital Partners and GRP Energy Capital. Viper was established by Diamondback with the purpose of owning, purchasing, and capitalizing on oil and natural gas assets in North America, specifically targeting mineral and royalty interests.
Triple Advantage Vital Energy's $1 Billion M&A Enhances Permian Portfolio, Cash Flow
Vital Energy, focused on the Permian Basin, plans quick debt reduction after securing $1.165 billion in deals, adding key Midland and Delaware basin inventory.
OXY has been the leader in Permian Basin production for the past five years. Currently, the Houston-based oil and gas company is deepening its presence in the basin with a $12 billion acquisition of CrownRock, adding over 94,000 acres in the Midland Basin and increasing its oil output by about 170,000 barrels per day. Occidental announced an increase in its proved reserves to 4.0 billion barrels of oil equivalent by the end of December 2023, up from 3.8 billion the previous year. Activities in the Permian largely fueled this rise. Occidental added approximately 303 million barrels through infill development projects as well as new discoveries and the further development of existing fields brought in another 153 million barrels.
TotalEnergies kicked off 2024 with a net income of $5.7 billion in the first quarter, marking a modest 3% increase from the same period last year and a 13% rise from the previous quarter. This growth occurred despite experiencing drops in both the volume and price of gas sales over the year and the quarter. Their adjusted net earnings, which exclude one-time or unusual items, were $5.1 billion. This represents a significant 22% decline compared to last year and a slight 2% drop from the last quarter. The company's earnings before tax, depreciation, and amortization reached $11.5 billion, while their cash flow from operations significantly decreased to $2.2 billion, falling by 58% from last year and a steep 87% from the previous quarter. TotalEnergies also recorded $644 million in impairments.
New Mexico leads the Rockies region in gas production and ranks as the sixth-largest in terms of active gas wells in the U.S. Last year, the state's gas well count slightly increased by 0.2% to 30,699, with new additions in both the northwestern San Juan Basin and the southeastern Permian Basin. Meanwhile, just to the north in Colorado, gas producers grew by a modest 0.1% to 30,322, primarily due to increased drilling activity in the DJ and Piceance basins. Wyoming saw a decline in its active gas wells by 3.7%, down to 17,006, with production mainly in Sublette, Sweetwater, and Converse counties reflecting stable or slightly reduced drilling activity. Utah also experienced a slight decrease of 0.2% in its number of gas wells, totaling 6,463. In Q1 2024, oil and gas industry activity in Oklahoma, Colorado, and northern New Mexico experienced a decline. This marks the fifth consecutive quarter of contraction in drilling and business activities within these regions. According to a survey that included responses from 33 firms operating in the Rockies, this downtrend is expected to continue over the next six months.