Shell share price slips amid warnings of $22 billion slash to assets value
The Royal Dutch Shell PLC (LON:RDSA) share price has slipped by 2.34% just before lunchtime on Tuesday as the company warns that the historic slump in oil prices could reduce the value of its assets by as much as $22 billion.
A tumultuous few months for the oil industry look set to have a lasting long-term impact on prices, with Shell predicting the average cost per barrel to stand at just $35 over the course of 2020. The company is said to be expecting a 40% drop in sales over the second quarter – a loss of equivalent to 4 million barrels per day (bpd) – significantly more than previous estimates of 3.5 million.
Shell’s second quarter results are due to be released on the 30th of July. Oil and gas production is expected to average at 2.35 million bpd between April and June, down from 2.71 million bpd in the first quarter.
Global travel restrictions and a free-fall in consumer demand drove oil prices down to their lowest levels since 1982 in April, with the average price per barrel tumbling to just $20 at the peak of the coronavirus pandemic. Shell’s announcement sees the world’s largest fuel retailer follow in the footsteps of rival oil giant BP’s plans to slash $17.5 billion off the value of its own oil and gas assets.
Brent crude oil is currently trading at around $41 per barrel, but a full recovery is still far out of reach: the average price per barrel stood at $66 at the start of the year. It appears it will take some time before prices return to pre-crisis levels, as Shell has released its forecasted benchmark average for Brent crude to $40 and $50 for 2021 and 2022 respectively. BP (LON:BP), on the other hand, expects prices to reach a high of just $55 – and not until 2050.
On the bright side, the disruption caused by the pandemic has afforded oil companies an opportunity to restructure their business plans. BP has already announced its intentions to refocus its strategy and shift to low-carbon energy, and pressure is mounting for industry-leading Shell to implement a similar scheme. The company has made some major changes already, cutting its dividend for the first time since World War II and slashing spending by $5 billion to $20 billion for 2020.
The next quarter is still expected to be especially tough for the oil industry, with Credit Suisse (SIX:CSGN) analyst Thomas Adolff warning that Shell’s announcement should be a “wake-up call” for other oil giants.
Shell’s second quarter 2020 update note came with an upbeat comment from the company, however, which stated that “given the impact of COVID-19 and the ongoing challenging commodity price environment, Shell continues to adapt to ensure the business remains resilient”.
On the Beach reports 66pc fall in revenues
On the Beach has reported a 66% fall in revenues for the first half of the year, as demand falls amid the Coronavirus pandemic.
Due to falling demand and a surge in cancellations, pre-tax profit fell from £13.4m to £2.3m and revenues fell two thirds to £21.4m.
“On the Beach continues to successfully build a leading position as more consumers discover the ease of use and wide choice of beach holidays across our platforms,” said Simon Cooper, the group’s chief executive.
“The flexibility and asset light nature of our business model together with our recently strengthened balance sheet and the actions we have taken since the middle of March means we are well placed to capitalise on the inevitable structural changes in the market post Covid-19. As a result, the board continues to look to the future with confidence,” he added.
Bookings remain low for 2021, however remain stronger than this year so far thanks to the early release of flights next year by most airlines.
The group’s chief financial officer has resigned. Paul Meehan will step down 17 July to “pursue other business interests”.
“I have very much enjoyed my time with On the Beach and feel that now is the right time to concentrate on and pursue other business interests,” said Meehan.
“I have worked closely with Shaun since he joined the group and I believe he is well-placed to take over the CFO role and deliver on the next phase of OTB’s growth,” he added.
Shares in On the Beach (LON: OTB) are trading -2.15% (0923GMT).
Wirecard UK ban lifted, allowing customers to access cash
The Financial Conduct Authority has lifted the restrictions on Germany’s Wirecard, allowing payments to continue.
After the company collapsed last week, the FCA banned Wirecard Card Services leaving thousands of people across the UK locked out of their accounts on Friday.
The FCA said in a statement: “We have been working closely with Wirecard UK and other authorities over the last few days to ensure that the firm was able to meet certain conditions required to lift the restrictions we imposed on it.”
“We are now in a position to allow Wirecard to resume operational activity. This means customers will now, or very shortly, be able to use their cards as usual,” the FCA added.
Wirecard’s German parent company filed for insolvency amid a £1.7bn alleged accounting fraud. Markus Braun, the former boss, has been arrested after he was accused of inflating Wirecard’s finances to make them appear more attractive to investors. Braun has been bailed from police custody after posting a deposit of €5m on Tuesday.
The UK watchdog said it chose to freeze accounts in order to protect customers’ cash.
The UK operations of the company has said itis working closely with the FCA. The company said:
“There may be a delay before all card programmes are fully operational, so some customers could find themselves unable to transact immediately but we anticipate this lasting no longer than 24 hours. We apologise for the inconvenience to our valued customers that the temporary suspension caused.”
Byron Burger seeks buyer as it teeters on the brink of administration
British burger chain Byron Hamburgers Limited – also known as Byron Burger – is currently embroiled in last-ditch negotiations with buyers after its private equity owners filed a notice for bankruptcy this afternoon. The hope is that a “pre-packed” administration deal will attract bidders to buy up either the brand name or a number of the chain’s 51 restaurants nationwide.
The business is owned by private equity fund Three Hills Capital Partners, who purchased the chain back in 2017. Just three months ago, the company hired KPMG advisors to guide Byron Burger through the unprecedented pressure from the coronavirus pandemic. The chain was one of hundreds of restaurants forced to close their doors due to the government’s lockdown measures brought in at the end of March.
It appears that Byron Burger has been preparing for this news for some time now. KPMG has been trying to sell the chain since May, but so far no buyers have come forward to snap up the premium burger brand. A source close to the company stated that three potential buyers have expressed interest in buying some parts of the business, but neither Byron Burger, Three Hills Capital or KPMG have commented on the claims.
If an investor does buy part of the brand, the likelihood is that there would be significant restaurant closures and job losses. Byron Burger has not changed its decision to reopen some of its locations from mid-July onwards, but the firm is expected to be smaller. This is not the first time Byron Burger has faced financial difficulties, however, as the company brought in KPMG back in 2018 to rescue and restructure the business as it struggled against a crowded market.
With over 2,100 employees across all 51 of its sites, Byron Burger makes up part of the tsunami of private equity purchases in the restaurant sector in the early 2010s. The company has been in deep water since 2018, according to recent accounts revealing a pre-tax loss of £47.2 million across the year.
A combination of sky-rocketing rent rates and a bustling high street restaurant market left Byron Burger in a weak position even before the pandemic made its mark. Now, with the majority of its employees on furlough and not expected to be reinstated once the company’s doors open to customers again next month, Byron Burger is nestled in an especially precarious spot.
Nevertheless, the chain and its owners are said to be optimistic that a “pre-packed administration deal” can be reached with a buyer before its July opening date. Oliver Kolodseike, associate research director at property consultants Colliers International, argued on the contrary that the outlook for the restaurant sector as a whole remains decidedly grim:
“With restrictions on table covers and customers opting for takeaways over sit-down meals surrounded by Plexiglas screens, it remains to be seen as to whether restaurants in the UK will even be profitable under social distancing regulations once their doors are allowed to reopen”.
Chesapeake Energy share price plummets as company files for administration
Shale gas drilling powerhouse Chesapeake Energy Corporation (NYSE:CHK) has filed for bankruptcy, sending its share price down 7%. The Oklahoma-based fracking pioneer has racked up debts of $9 billion as well as a notorious reputation for its negative environmental impact – the company is ranked the 90th most polluting business in the world.
Chesapeake has no doubt fallen victim to the record plunge in oil prices, following the paralysing impact of the coronavirus pandemic on the energy industry. The company was first reported by Reuters to have sought out debt advisors in March, but months of negotiations with creditors were unable to offset Chesapeake’s hefty dues.
Current CEO Doug Lawlor inherited a notably worse $13 billion debt when he came to the helm back in 2013, using widespread spending cuts and asset sales to help reduce the company’s debt as far as possible. However, this year’s historic free-fall in oil prices was the nail in the coffin for the struggling business.
Chesapeake was co-founded by Aubrey McClendon, an outspoken and prominent advocate for shale drilling, who curiously died in 2016 in a violent car crash in Oklahoma while facing a federal probe into bid-rigging. McClendon had overseen Chesapeake grow from a outlying wildcatter to a top US producer of natural gas. It is still the sixth-largest producer by volume in the country.
Remarking on Chesapeake’s announcement, Lawlor stated: “Despite having removed over $20bn of leverage and financial commitments, we believe this restructuring is necessary for the long-term success and value creation of the business”.
Just last year, Lawlor made a $4 billion concerted effort to cut back on Chesapeake’s reliance on natural gas reserves. Its shares suffered heavily for the decision, and the value of the company’s oil and gas holdings have already sank by $700 million this quarter.
Chesapeake shares have dropped more than 90% this year making them one of the biggest causalities of the demand destruction caused by coronavirus.
EQTEC shares surge on JV announcement, up over 500% in 2020
EQTEC shares (LON:EQT) surged on Monday as the waste technology and gasification company announced an agreement to distribute green energy solutions in Ireland.
The deal involves a partnership with the Carbon Sole Group for a number of projects including biogas, waste-to-energy and district heating.
The projects will utilise EQTEC’s Gasifier Technology whilst Carbon Sole will lead the development of the business.
EQTEC shares rose as much as 12% on the news meaning shares in the green technology company are now up over 520% in 2020.
The rise has been driven by a series of similar announcements demonstrating EQTEC’s expansion of it’s joint venture model in a wide range of clean energy projects.
“Developing partnerships with high quality and established stakeholders in our target markets has been a key focus of EQTEC since I joined the company,” said David Palumbo, CEO of EQTEC.
“We are particularly excited about this collaboration agreement with Carbon Sole as we rarely find a developer with such a great understanding of the sector matched with a thorough understanding of the energy needs of the towns and available resources in which the projects are to be vested.”
“Carbon Sole have made numerous public sector presentations and submissions towards the decarbonisation of gateway towns and regions, including actively participating in public sector stakeholder steering groups and workshops in respect of Renewable Supports and Climate Action Funding.”
“Carbon Sole have been advising both public and industrial sectors in Ireland on the decarbonisation of industrial processes and energy transition for a number of years. We enter this partnership very confident that it will evolve beyond the current three projects under development.”
“Ireland is a very interesting market for us, offering numerous opportunities, particularly given its unique characteristic of being now the only EU state in the islands of the North Atlantic. It is also the location of our corporate headquarters and we intend to be a significant player in the decarbonisation process of its industries.”
“Developing partnerships with high quality and established stakeholders in our target markets has been a key focus of EQTEC since I joined the company,” said David Palumbo, CEO of EQTEC.
“We are particularly excited about this collaboration agreement with Carbon Sole as we rarely find a developer with such a great understanding of the sector matched with a thorough understanding of the energy needs of the towns and available resources in which the projects are to be vested.”
“Carbon Sole have made numerous public sector presentations and submissions towards the decarbonisation of gateway towns and regions, including actively participating in public sector stakeholder steering groups and workshops in respect of Renewable Supports and Climate Action Funding.”
“Carbon Sole have been advising both public and industrial sectors in Ireland on the decarbonisation of industrial processes and energy transition for a number of years. We enter this partnership very confident that it will evolve beyond the current three projects under development.”
“Ireland is a very interesting market for us, offering numerous opportunities, particularly given its unique characteristic of being now the only EU state in the islands of the North Atlantic. It is also the location of our corporate headquarters and we intend to be a significant player in the decarbonisation process of its industries.” Boris Johnson to double down on Keynesian spending post Coronavirus
UK prime minister Boris Johnson spoke on Times Radio on Monday, and stated that the UK would face “bumpy times” and that Coronavirus had been an “absolute nightmare” for the country. Aside from the inevitable discussion about the government’s handling of the pandemic, there was also talk about whether Mr Johnson would stay true to his big-spend budget announced in February.
On this matter, the prime minister said that returning to austerity “would be a mistake”, and said his government would instead opt for “doubling down” on its existing plans to ‘level-up’ the economy and infrastructure. As part of this “bounce forward”, Boris has now committed £1 billion to 50 school projects and £560 million for school repairs, over the next decade.
In order to recover from the economic shock of the virus, Johnson said that the UK requires a similar effort to the one seen in the US under President F.D. Roosevelt, with the New Deal reigniting the economy following the Great Depression in the 1930s.
In the interview, the PM commented:
“This is the time to invest in infrastructure, this is the time to make those long-term decisions for the good of the country,”
“You have to be careful and the chancellor will be setting out our plans in the spending review in the autumn.”
“But in the end what you can’t do at this moment is go back to what people called austerity, it wasn’t actually austerity but people called it austerity, and I think that would be a mistake.”
“I think this is the moment for a Rooseveltian approach to the UK.”
Speaking during his announcement of schools reopening, Boris Johnson said the recovery would be driven by an “activist, interventionist approach”.
He continued, saying that this approach would “get businesses to be confident, to start investing, to start taking people back on and start creating new jobs and driving new growth”.
Fiscally and monetarily prudent commentators will no doubt have many words of wisdom for the PM, and add that while throwing money at a problem may make it hurt less today, it could cause additional and very real problems down the road.
That being said, if the PM’s plan is to reopen the economy in earnest, then a commitment to spending is certainly the right way to double down on rapid recovery. Mr Johnson’s plan is not so much slow and steady, as boost confidence and hope for a rapid return to strong liquidity.
Aside from anything else, a commitment to spending is probably the right move politically. Not only does it take the cards out of Labour’s hands (they can hardly promise to spend more) but it will also satisfy key areas of support such as the former ‘red wall’, who voted for Boris’s vision of national potential, opportunity and rebuilding.
Mortgage approvals reach record low
The number of UK mortgage approvals has slumped to the lowest level since records began in October 1997.
As the economy continues to be hit by the Coronavirus pandemic, new Bank of England figures showed UK mortgage approvals fell from 15,800 in April to 9,300 in the month of May. The new levels are around 90% less than the February levels.
Figures are unlikely to improve in the coming months as the government’s furlough scheme is coming to an end and unemployment figures are expected to spike.
The Bank of England data also highlighted people’s decisions to make less credit card borrowings over the course of the pandemic.
“Household’s consumer credit borrowing remained lower than usual in May, as Covid-19 continued weighing on spending. On net, people repaid £4.6 billion of consumer credit in May following repayments of £7.4 billion in April and £3.8 billion in March,” it said.
“The extremely weak net flows of consumer credit meant that the annual growth rate was -3.0%, the weakest since the series began in 1994.”
The government instructed those planning to move houses to delay whilst in lockdown. The restriction was eased on May 13, however new data shows there was not a pent-up demand.
BP share price bounces amid petrochemicals sale to INEOS
BP plc (LON: BP) has announced the sale of its global petrochemicals business to London-based chemical producers INEOS. The $5 billion transaction of BP’s aromatics, acetyls and related commodities represents the “next strategic step” in reinventing BP’s portfolio.
BP’s share price bounced a modest 2.57% or 7.82p to 312.42p at BST 10:41 in response to the company’s news.
The company’s petrochemicals business is focused on two main products – aromatics and acetyls – which each boast industry-leading manufacturing and technology plants. BP’s petrochemicals projects have a “strong presence” in the growth market in Asia.
In total, the business has interests in 14 manufacturing plants across Asia, Europe and the USA. In 2019, BP produced 9.7 million tonnes of petrochemicals.
INEOS is a leading global chemicals company, with a vast network spanning over 180 sites across 26 countries. The company employs over 22,000 staff worldwide.
The acquisition of BP’s petrochemicals projects is not the first transaction between the two companies; INEOS has acquired a number of businesses from BP, notably $9 billion purchase of Innovene – a subsidiary which made up the majority of BP’s chemicals assets and refineries at the time – in 2005.
Two weeks ago, BP announced that it was going to slash a total of $17.5 billion off the value of its gas and oil assets in response to swelling stockpiles and a drop in demand caused by lockdown restrictions.
The industry has been hit hard by the coronavirus pandemic, as oil prices plummeted to record lows in April and analysts expressed concern for “dragging” crude prices if the global economy does not make a swift recovery.
Commenting on BP’s sale, chief executive Bernard Looney said:
“This is another significant step as we steadily work to reinvent bp. These businesses are leaders in their sectors, with world-class technologies, plants and people. In recent years they have improved performance to produce highly competitive returns and now have the potential for growth and expansion into the circular economy.
“As we work to build a more focused, more integrated bp, we have other opportunities that are more aligned with our future direction. Today’s agreement is another deliberate step in building a bp that can compete and succeed through the energy transition”.
The company’s chief financial officer Brian Gilvary added:
“With today’s announcement we have met our $15 billion target for agreed divestments a full year ahead of schedule, demonstrating the range and quality of options available to us. bp has had a long relationship with INEOS and this agreement reflects the mutual respect and trust that exists between us. It is a strategic deal for both parties that recognises both the high quality of the businesses and that INEOS is in many ways a natural owner for them”.
The number of staff employed across BP’s petrochemicals projects stands at around 1,700, all of whom are expected to transfer to INEOS on the completion of the sale.
Despite today’s encouraging rise, the BP share price is down 34% across 2020 so far.
Boris pledges billions to rescue economy – but is it destined to be yet another broken promise?
UK Prime Minister Boris Johnson has vowed to spend billions of pounds to rescue the economy, as the country fast approaches a looming economic fallout in the wake of the coronavirus pandemic.
Early on Sunday, Johnson took to Twitter to announce his plans to build the country’s way “back to health”. In an interview with the Mail on Sunday, he reinforced his election-era commitments to ‘levelling-up’ British infrastructure – pledging new homes, schools and hospitals – as well as providing thousands of new jobs in the process.
A storm of epic proportions
The PM’s promise could not have arrived at a time of more desperate need. Just last Friday, Chancellor of the Exchequer Rishi Sunak warned of “tragic projections” for UK unemployment when the government’s furlough scheme comes to an end in October. Strict lockdown measures implemented in March to stem the spread of coronavirus also hit the construction industry hard, with all non-essential projects put on hold until the end of April. In his typically bombastic style, Johnson compared the pandemic and its repercussions to a storm of epic proportions, stating: “If Covid was a lightning flash, we’re about to have the thunderclap of economic consequences”.Responding to questions about how the government intends to fund his ‘levelling-up’ agenda, Johnson was swift to shut down rumours that he might follow in the footsteps of former Conservative PM David Cameron: “We are absolutely not going back to the austerity of 10 years ago”.We want to build our way back to health. If Covid was a lightning flash, we’re about to have the thunderclap of the economic consequences.
We’re going to be ready. Read my full interview with The Mail on Sunday here: https://t.co/DX9tIURqKI pic.twitter.com/y0mUpgCJru — Boris Johnson #StayAlert (@BorisJohnson) June 28, 2020
Project Speed to the rescue
A new task force named Project Speed – led by right-hand man Sunak – is set to be unveiled in one of the PM’s speeches in the Midlands on Tuesday. The group’s aim is to deliver key projects faster, with one of the first proposals being a number of new prisons to help address issues with overcrowding and coronavirus infections. Explaining the details of his plan to reverse soaring unemployment rates and inject a shot of optimism into the economy, Johnson said: “We’re going to need a very committed, dynamic plan. Not just for infrastructure, not just for investment, but making sure that young people have the confidence they need that we are going to help them get into a place of work, to keep their skills up, to keep learning on the job and get a highly paid, highly skilled job that will stand them in good stead for a long time to come. “We are going to have plans for work placements, supporting young people in jobs, apprenticeships, getting people into the workplace, making sure that their skills don’t just fall into disuse and we’re going to give an opportunity guarantee for all young people”.Priti weighs in
Home Secretary Priti Patel backed the PM’s plans in an interview with Sky News on Sunday, stating: “As we move out of this awful period of coronavirus, this dreadful disease, we want to get Britain moving again. We’re building now very much a road to recovery, a road map focusing on infrastructure right now, levelling up across the country, focusing on roads, broadband – the type of things that effectively help to create jobs but also provide services and economic growth and opportunity across the country”.A lukewarm reception
Johnson’s pledge comes after the Bank of England injected £100 billion into the UK economy to stop the UK slipping into insolvency. Last week, Governor Andrew Bailey revealed that the government would have faced a “market meltdown” had it not been for the Bank’s historic intervention, but was quick to warn that businesses should not rely on bail-outs and boosts in the future. Nevertheless, mounting fears that a recession is on the horizon mean that Johnson’s promise has been welcomed with open arms – for some at least. Notoriously argumentative Piers Morgan was one of the most high-profile critics of the PM’s announcement, posting his thoughts on Johnson’s leadership so far on Twitter:The irony of @BorisJohnson winning an election on a pledge to ‘take back control’ when he’s now completely lost control of this country through his mind-blowing dithering & incompetence… is amazing. pic.twitter.com/qFDTllRb87
— Piers Morgan (@piersmorgan) June 10, 2020