LNG

UK-based major Shell reported better-than-expected earnings to start 2024 despite lower prices and a decline in LNG sales as the natural gas, oil and chemicals trading units all  performed well.

Italian energy company Eni has reached an agreement on the combination of substantially all of its upstream assets in the UK with Ithaca Energy to significantly strengthen its presence on the Continental Shelf of the UK, a significant LNG importer.

Eni is one of the most dynamic oil and gas exploration and production companies that has brought transformational energy resources through gas discoveries and development of existing fields offshore nation like Mozambique and Egypt and in others in Asia.

Under the terms of the business combination agreement Eni and Ithaca will combine the Eni UK Business with the existing Ithaca business.

The combination is being funded through the issue to Eni UK of a number of new ordinary shares that represents 38.5 percent of the enlarged issued share capital of Ithaca.

The economic effective date for the combination will be 30 June 2024, with completion expected in the third quarter.

Ithaca is one of the largest independent oil and gas companies on the UKCS, with a substantial resource base and playing a key role in energy supply security in the region, with stakes in six of the 10 largest fields and the top two largest development fields on the UKCS.

Stronger group

“The combination will immediately create an enlarged and stronger group with 2024 production greater than 100,000 barrels of oil equivalent per day and the underlying potential to organically grow to 150,000 boepd by the early 2030s,” said Eni.

“The combination is aimed at replicating the previous successful execution of upstream combinations that Eni has formed using its distinctive Satellite Model including Vår Energi in Norway and Azule Energy in Angola,” the Milan-based company explained.

“The Satellite Model is a strategic response to the challenges and opportunities of energy markets, creating focused and lean companies able to attract new capital to create value through operating and financial synergies and the acceleration of growth,” said Eni.

With this approach Eni said it would thereby strengthen its commitment to the UK after its previous acquisition Neptune Energy.

Eni concluded an agreed acquisition for $4.9 billion of UK-based Neptune in June 2023, gaining key global LNG stakes and gas field assets in Algeria, Indonesia, Norway, the UK, the Netherlands and Australia.

Under the terms of the takeover, Eni purchased Neptune for $2.6Bln and Eni’s Norwegian-listed subsidiary Vår Energi agreed to pay $2.3Bln to acquire Neptune’s operations in Norway.

Changing market

“This agreement represents a further example of Eni adapting to the demands of the changing energy market and in this case deploying our successful Satellite Model,” said Eni Chief Executive Claudio Descalzi.

“It affords the opportunity to build scale, realising efficient upstream growth and maximising value under a dedicated and focused management structure supported by Eni resources and expertise,” Descalzi added.

“We have moved quickly after the acquisition by Eni of Neptune Energy to transform our competitive position in the UK and we see the opportunity for Eni and Ithaca to realise material long-term value in helping to address the key challenges of security, affordability and sustainability of energy supply,” the CEO stated.

Shell’s earnings skyrocketed in the second quarter as more projects in Qatar, Australia and UK are set to boost liquefied natural gas and pipeline gas volumes while the company sold more than 15 million tonnes of LNG during the quarter at high prices.

Royal Dutch Shell swung back to a much reduced profit in the third quarter after heavy write-downs in the previous quarter, reflecting lower realised prices for oil and LNG as cargo sales declined 9 percent due to the Prelude FLNG hull being shutdown offshore northwest Australia.

The Saudi Arabian Oil Company President and Chief Executive Amin Nasser said that “the worst is definitely behind us” for the crude oil market, as global demand is recovering and is currently at 90 million barrels per day.

Royal Dutch Shell reported that first-quarter profits had almost halved from a year ago, but the natural gas and LNG division still managed to maintain stable earnings as sales increased.

Shell said first-quarter LNG sales rose 9 percent to 19 million tonnes from 17.51MT in the same three months of 2019, though were down from the 20.09MT sold in the final quarter of 2019.

Shell’s overall quarterly earnings dropped by 48 percent to $2.75 billion from $5.29Bln in the same three months of 2019, reflecting lower realised oil, gas and LNG prices, weaker realised refining and chemicals margins as well as lower sales volumes.

Earnings from Integrated Gas, one of four production divisions at Shell and including LNG, came to $2.14Bln compared with $2.56Bln in the year-ago quarter.

“Our Integrated Gas and Marketing businesses continued to achieve robust results this quarter, bringing resilience to our cash flows,” said Shell Chief Executive Ben van Beurden.

Shell noted that during the quarter Integrated Gas announced that it would not proceed with the proposed US Lake Charles LNG project with Energy Transfer of the US due to the current market conditions.

After the quarter, in April, Shell took the final investment decision to develop the first phase of Arrow Energy’s Surat Gas Project in Queensland, Australia, which will bring up to 90 billion cubic feet per year of new gas to market at peak production.

Shell said that compared with the first quarter last year, gas earnings, excluding identified items, primarily reflected lower realised LNG, oil and gas prices as well as lower contributions from trading and optimisation.

“Total gas production increased by 12 percent, mainly due to lower maintenance activities and field ramp-ups in Trinidad and Tobago and Australia,” said the company.

“LNG liquefaction volumes increased mainly as a result of lower maintenance activities and new LNG capacity, partly offset by lower feed-gas availability compared with the first quarter 2019,” it added.

In its outlook for the second quarter, Shell said that due to demand or regulatory requirements and/or constraints in infrastructure, the company may need to take measures to curtail or reduce oil and gas production, LNG liquefaction as well as the utilisation of refining and chemicals plants.

In the second quarter, Shell said Integrated Gas production is expected to be approximately 840-890 thousand barrels of oil equivalent per day.

LNG liquefaction volumes are expected to be approximately 7.4-8.2 million tonnes.

More than 90 percent of the term contracts for Shell’s LNG sales are oil price-linked with a price lag of typically three to six months.