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This week’s drop in OP has knocked it off a promising trend but, like busses, there’ll be another one along eventually:
https://invst.ly/13a2vy
Another thing about OP is that you can always find a headline that matches your pov:
FT: ‘The days of $100 oil prices are over'….Demand will continue but potential world supply is likely to peg back the cost.
https://www.ft.com/content/57f1ad77-119f-42df-a1ff-3d57df70ba80
OilPrice.com: ' Chevron Returns Record Cash to Investors as Oil and Gas Output Hits New High
https://oilprice.com/Latest-Energy-News/World-News/Chevron-Returns-Record-Cash-to-Investors-as-Oil-and-Gas-Output-Hits-All-Time-Hig.html
I didn't read the FT article (I assumed a paywall ) but I assumed it overlooked the ongoing fall in identified global reserves?
Ultimately the world will need Oil to be expensive in order to drive transition to alternatives. Cheap oil is bad for everyone.
Boyo - the gap analysis is really stark. It appears to start to manifest itself and widen from around January 2022, so that its not a particularly recent phenomenon but becomes much more potentially serious from starting around the middle of 2023. As you say from October 2023 it accelerates to looking really serious, basket-case/ recovery play territory.
It seems the market is dictating through the share price malaise that enough is enough & a major change of strategy is needed. It is becoming increasingly less concerned whether the impetus for this is internal or external. Your graphs indicate that steadying the ship, or more of the same, are not going to be viable options.
I put a couple of dividends from Shell into BP recently & will probably develop this further.
It looks like a stray rocket might impact the OP next week! Have a good weekend.
Absolutely GfG - regarding BP:
Looking at BP against Shel since 2019, it’s apparent that BP has slipped by more than 15% in sp terms:
https://invst.ly/13a1y2 .
All of which has come during the recovery from the mutual low point of all the majors in October 2020.
But whilst BP’ volatility usually dances around Shel - and has made them a useful pairing for investors who trade between the two, BP has crashed out of its ‘covid recovery’ trend since the dreadful drop and gap down in October, shown more closely here:
https://invst.ly/13a21d
So, depending on your viewpoint, it’s either a basket case or a recovery prospect with better upside potential than Shel.
OP dropping by $4 since Thursday’s statement did not help the promising recovery in Shel’s sp did it?
Here’s the week’s OP v Oil Co’s chart:
https://invst.ly/139zr1
Yet despite the wobbles, the sp remains just about on the upward green trend for the moment:
https://invst.ly/13a1mp
Good to see that the total divi for 2023-4 will be $1.29, up from $1.03.75 in 2022-3. And that regularly increasing the divi by a small amount seems to have reduced the level of ersatz outrage in the media that used to greet each raise. Although the drop in profits will have helped as well.
Still a very long way from the $1.88 we got annually from 2016-19. But at least I topped up by roughly 50% during the covid dip, so my total Shell income will at last be back to 2019 levels this year.
Apologies by "oblivious" I obviously meant obvious! Quite funny really!
The market reaction says it all. Shell exudes confidence, consistency & belief in the future of the business. As D says the $3.5 billion buybacks are clearly paid for by an (8.5% ish increase in debt). A really bold statement that Shell believes it can outperform the cost of debt.
Also it is clear that Shell will not be slavishly tied to increasing the dividend by 15% in the final quarter each year. It will be increased when business results justify it.
This will make the BP's results on the 6th of February even more interesting & BP will for me most likely look even weaker and more vulnerable after them! Even if BP tried to emulate or simply copy Shell's business strategy, they are well over a year behind them & still without the will, leadership or Board mandate enabling a change of strategy at pace.
BP are weak and getting weaker. The weakest and most oblivious target in the sector, when several of its peers have already recently ceded their independence, they are becoming a primary target for the predators that are circling around!
My money would be on a predator announcing a hostile bid, and then Sawan coming along as a saviour with an agreed merger/takeover. Whatever else this looks like the beginning of the end of BP's independence, they have not shown a glimmer of hope that they can save themselves so far!
$43 billion sure is a big number but it has to be taken in context.
For a smaller company with a market cap of say $50 billion and other corresponding figures for cash flow, profit etc that would be worryingly large
For Shell $43 b is very manageable. The key ratio is gearing rather than the absolute amount which is currently around 18.8%. Anything under 20%-30% is comfortable and indeed some investors might complain that it's too conservative.
Have a look at gearing levels for some other companies / sectors. For example utilities will be MUCH higher but remember they have different income profiles, regulated asset bases etc.
Confidence that they can get a better return than the cost of the debt?
Just wondered if anybody has any idea why Shell keep their debt so high. Currently 43$ Billion which they seem very happy with.
Would have thought that they would have taken the opportunity to pay a bit more down than they have down?
SHELL 4Q ADJ PROFIT $7.31B, EST. $6.14B
SHELL ANNOUNCES A SHARE BUYBACK PROGRAM OF $3.5B
SHELL 4Q NET DEBT $43.54B, EST. $40.07B
Q4 Production and dividend ahead of consensus
The daily chart today (Wednesday) makes things look rather worse than they are: https://invst.ly/138i6u
A 15' view shows that the sp has held pretty level over three days despite a drop in OP: https://invst.ly/138i53
Thursday will be the test.
I often say that the sp follows OP except when it doesn’t and the fact is that although the two are related the sp does have other significant influences (like nasty impairment news) which ordinarily play a more dominant role. Then there's the tendency for the sp to filter out much of OP’s volatility. This comparison of the two since mid October demonstrates this quite well:
https://invst.ly/137op3
The sp may well be less volatile than Brent but , as I mentioned previously, it is currently running about £1 down compared the trend in OP which has been steadily rising since the year began. There's also that gap up to 2566 beckoning to be filled at some point. It’s a shame about the much smaller one down to 2440 created on Friday with the sharp bounce back towards 2500 . It's possibly small enough to ignore whilst the price is rising. The scene is therefore set for the results to overshadow the recent setback, which was fortuitously announced well in advance.
I think the final impairment(s) figure will have been decided based more on Sawan's overall strategic perspective than basic accounting principles. Personally I think it is likely to be mostly attributable to a realistic valuation of assets, in the event of M & A activity. With your accounting background you obviously know how write-downs impact on ROCE, ROI etc.
A variability factor of $2 billion was indicated with the original announcement on the 8th January relating to impairment(s). This would indicate a very high, costly, and mystifying level of variability in the performance of "incompetent accounts staff." Also four and a half thousand million dollars of impairment(s) is a level of performance from "incompetent accounts staff" that would have me racing for the exit.
Getafgrip, an impairment of such a high amount hitting the P+L in one go smacks of incompetent Accounts staff spoken from my accounting background. As part of any annual audit, all B/S constituents should be accurately reconciled and agreed as reasonable. I accept that valuation methods and approaches can change, but that is a rarity, eg depreciation method, and the reason and detail of this Impairment needs full explanation.
Here’s how Shel, BP, CVX and XOM moved with respect to Brent last week (approximate scale shows Shel and Brent price )
https://invst.ly/136gt0
To put that into some context, here’s a plot of Shel & Brent over the last 15 months , with some dates highlighted when OP was at the current price of $83:
https://invst.ly/136h59
Brent has risen by over $1 since Friday’s LSE close, which suggests that the sp could strengthen further on Monday if OP remains firm.
More recently, Shel has been lagging OP and the comparison over recent weeks suggests that Shel is at least £1 down currently and should be heading to fill the gap created by the update on Jan 8th to 2566 once confidence is restored sufficiently.
https://invst.ly/136hzp
Probably a bit more sense and direction when the impairments, and exactly where they have fallen, are exactified on the 1st February.
Sawan as a "new broom" CEO may well put the impairments at the top of the forecast range - $4.5 billion is a serious dampener for any party. Really could be quite positive in PR terms with an election only maybe 10-nonths away though.
Brent has been on the up since December
Brent: https://invst.ly/133lvt
but Shel has been going the other way, pushed flat down on the the bottom blue tren here:
Shel: https://invst.ly/135h12
BP similarly, although with slightly more sign of an uptick this last couple of days:
BP: https://invst.ly/135h0l
I would suggest 15% Divi hike as per previous years, and we are still below pre covid levels even then.
Share fundamentals will give you the shares in issue
Hike possible?? standard 4%? or 10% or maybe 15%???
Also how can i check the total shares
Absolutely GfG - the ‘increase in spare capacity’ observation was in the article you posted and I hadn’t switched onto that until your post - so thanks!
Good to see you back Armani: hope this works out well for you - and us, of course (self interest is never far away in these matters).
I’m not too disappointed in today’s minor drop although it did run counter to OP and also went against the expectations I had expressed in a previous post. No chart today as my interest is currently in the ratio of sp to OP which is at a recent low of about 29.6x. In terms of the 30 day moving average, it places Shel about £2 down relative to OP when compared to how it has performed on average over the last month (by my amateur calculations). To me, this represents an eventual upside when conditions improve - hopefully by FY results or Q2 when US ‘driving season’ approaches.
Time will tell as char333 would say - it seems he’s over on the BP chat now.
Boyo - looking at KSA crude oil production for 2023, it came down from very roughly 10-10.5 million BPD in the first half of the year to an average of 9 million and a little below this consistently for the half beginning July 2023.
As you point out this effectively gives the KSA spare production capacity, which looks to be around a minimum of 10% consistently over the last 6-months +. Essentially its a safety buffer to mitigate any price shocks & introduces a swing-production element to their overall output, which they can change significantly depending on market conditions. Its all about "control" mechanisms.
Good morning All,
I've waited on the sideline to buy back into SHEL for a very long time.
First position 2371p + usual fees.
Will add on any further retracement
ATB