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Shell’s Upstream Portfolio: Reshuffling Its Cards

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Shell’s Upstream segment

Royal Dutch Shell (RDS.A) produced 3 MMboepd (million barrel of oil equivalent per day) from its worldwide operations in 4Q15. It’s essential to consider that of this total production, 2.6 MMboepd, or 86%, is from operations outside the United States.

Liquids accounted for 1.5 MMboepd, 50% of Shell’s total production. Peers ExxonMobil’s (XOM), BP’s (BP), and Chevron’s (CVX) production mixes have liquids to the tune of 59%, 53%, and 66%, respectively.

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In 2015, Shell’s net production grew by 1%, excluding divestments, curtailments, license and production sharing contract expiries, and security issues in Nigeria. In 2015, new projects and ramp-ups such as Cardamom and Mars B in the Americas and Bonga NW in Nigeria more than offset the natural field declines.

Royal Dutch Shell has a vast proved reserve base of 11.7 billion barrels of oil equivalent. Plus, Shell expects its production to rise by ~0.8 MM boepd by 2020. In 2016–2017, Shell expects to start production of its self-operated projects such as BC-10 Phase 3, Forcados Yokri, Gbaran-Ubie ph2, Malikai, NA LRS, and Stones. Of these, BC-10 Phase 3 (Parque das Conchas) started production in March 2016.

Plus, a liquefied natural gas facility of around 9.7 million tons per annum is under construction, and it’s expected to come onstream by 2020. Going forward, the combined Shell–BG entity plans to grow its deep-water, integrated gas, and liquefied natural gas portfolios.

Portfolio restructuring

Along with ramping up production, Shell is also restructuring its upstream portfolio by exiting non-strategic projects. These include projects such as the Carmon Creek thermal project in Canada, Elba Liquefaction, the Malaysia Dua contract, and the Bab sour gas reservoirs.

With a competitive upstream portfolio and a huge reserve base, Royal Dutch Shell’s upstream segment is likely to grow stronger and more profitable in a scenario of rising oil prices.

If you’re looking for an ETF comprising large companies, you can consider the iShares Core S&P Total U.S. Stock Market ETF (ITOT). The ETF has ~6% exposure to energy sector stocks. ITOT also holds XOM and CVX in its portfolio.

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