Shell Points to Progress on Ethylene, Offshore Projects as it Tempers Spending
Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands) added its name to the ever-growing list of Oil & Gas Industry giants that have been brought low by the COVID-19 pandemic. Total revenues for 2020 stood at $180.5 billion, just more than half of 2019's total. Like its peers, Shell is crossing its fingers that the industry will benefit from COVID-19 vaccinations and an upswing in fuel demand in the second half of 2021. Industrial Info is tracking more than $86 billion in active projects worldwide from Shell, including nearly $11 billion worth under construction in the U.S.
Shell's net income attributable to shareholders plunged to a $21.7 billion loss for full-year 2020, compared with a profit of $15.8 billion for 2019. This marks the first full-year net loss since Royal Dutch Petroleum Company merged with Shell Transport & Trading Company in 2005. Even Shell's adjusted earnings--which deduct the effects of oil price changes, divestment gains and losses, impairments and write-downs, and other exceptional factors--fell 71% from 2019 to a $4.85 billion gain.
Losses in 2020 included a post-tax impairment charge of $6.5 billion, mainly related to offshore assets in the U.S. Gulf of Mexico, Brazil, Nigeria and Europe, as well as unconventional assets in North America. Among its offshore projects under construction, Shell's Power Nap Offshore Field Development in the Gulf of Mexico is expected to yield a peak output of 35,000 barrels of oil equivalent per day from the Mississippi Canyon 943 Block.
Major components of Power Nap, which are not expected to reach completion until the tail-end of 2021 at the earliest, include $400 million in subsea infrastructure installations, including subsea templates and wellheads; and $100 million in subsea pipelines and umbilicals, with lines running 10 miles from the subsea infrastructure to Shell's Olympus Platform, which is undergoing $50 million in related modifications. For more information, see Industrial Info's project reports on the subsea infrastructure, pipelines and umbilicals, and platform modifications.
Shell executives noted the company has made some recent progress at one of its largest projects to face delays due to the pandemic: the estimated $6 billion ethylene complex in Monaca, Pennsylvania, which has been under construction since early 2017 and originally was set to wrap up at the end of 2020. One of the most widely anticipated chemical projects in the U.S., it will feature a 1.5 million-metric-ton-per-year ethylene plant that will use ethane feedstock from the Marcellus Shale. For more information, see Industrial Info's project report.
"The [Monaca] chemicals project in Pennsylvania, of course, has had its challenges last year," said Ben van Beurden, the chief executive officer of Shell, in a quarterly earnings-related conference call. "But there, we are back to almost full complement on site. It will be probably impossible to catch up after the delays that we had. But nevertheless, I think it is going very, very well at the moment. For the [in-service] timeline, think of 2022."
Several projects supporting the Monaca plant also are set to be completed in mid-2022, following similar delays (all dollar values are estimates):
- a $750 million linear low-density polyethylene (LLDPE) unit; see project report
- a $750 million gas-phased high-density polyethylene (HDPE) unit; see project report
- a $750 million slurry-phased high-density polyethylene (HDPE) unit; see project report
- a $300 million gas-fired cogeneration unit, with an expected capacity of 250 megawatts (MW); see project report
Executives said in the conference call that Shell's 2021 capital expenditures are expected to total between $19 billion and $22 billion, compared with about $16.6 billion in 2020 and $23 billion in 2019.
"We were indeed quite stringent on how we were going to deploy capital expenditures [in 2020], for obvious reasons," van Beurden said in the conference call. "It was not just our desire to really preserve cash as much as possible. Quite often, it was helped along by the inability to spend. Think of very large onshore projects where we simply could not sustain being with 8,000 people on a construction site. So, that's why we ended up with a cash capital-expenditure number below $18 billion."