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Is Shell’s Upstream Production Poised for Growth?

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Aug. 18 2020, Updated 10:15 a.m. ET

Shell’s upstream segment production

Following its BG Group acquisition, Royal Dutch Shell (RDS.A) produced 3.7 MMboepd (million barrels of oil equivalent per day) in 1Q16 from its worldwide operations compared to 3 MMboepd in 4Q15.

It’s essential to consider that of Shell’s total production, 2.9 MMboepd, or 79%, is from its operations outside North America.

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Shell’s crude oil and natural gas realizations

Liquids account for 1.8 MMboepd, or 49% of Shell’s total production. Oil and natural gas prices have fallen sharply in the past few quarters. Shell’s average liquids realizations in North America fell to $26 per barrel in 1Q16 from $41 per barrel in 1Q15.

Shell’s average global liquids realizations stood at $30 per barrel in 1Q16, marginally higher than its North American realizations.

However, Shell’s natural gas realizations in Europe were almost two to three times higher than its North America realizations. Average natural gas realizations in North America stood at $1.7 per Mcf (thousand cubic feet) in 1Q16. European operations yielded $4.9 per Mcf. Lower prices in the United States were on account of a higher supply of natural gas in the country.

Shell’s upstream segment projects

Shell has a vast proved reserve base of 11.7 billion barrels of oil equivalent (or Bboe). Shell’s peers BP (BP), ExxonMobil (XOM), and Chevron (CVX) hold reserves of 17.1 Bboe, 24.8 Bboe, and 11.2 Bboe, respectively.

Shell expects its production to rise by ~0.8 MMboepd by 2020. In 2016–2017, Shell expects to start production from its self-operated projects 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.

Shell has taken tough steps toward reorganizing its upstream portfolio. It has divested or canceled projects such as Carmon Creek, Elba Liquefaction, Malaysia Dua JVA, and the Bab sour gas reservoir. However, the company plans to continue its Appomattox project, a deep-water project in the Gulf of Mexico.

The iShares Core S&P Total U.S. Stock Market ETF (ITOT) has ~7% exposure to energy sector stocks, including XOM and CVX.

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