Shell SA - Oct 2019

SHELL SOUTH AFRICA

SHELL SOUTH AFRICA

Strategically Growing

in Upstream & Downstream PRODUCTION: David Napier

Shell is one of South Africa’s most important and most historic oil and gas business. With activity across a range of sectors, and a large and talented employee base, Shell is significant for both the energy business in SA as well as the country’s economy. With exploration and investment ongoing, Shell will undoubtedly continue to dominate in this lucrative sector. www.enterprise-africa.net / 117

INDUSTRY FOCUS: TRANSPORT / LOGISTICS

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Now is an exciting time for global energy business, Shell. The company, which undertook a consolidation strategy throughout 2018 – selling off a number of key assets around the world, is investing in new growth, and working towards a future where carbon emissions are lower and its projections for 2020 (set out in 2017) in terms of cashflow, dividend and investment will be met.

Globally, the company has achieved a number of milestones already in 2019. In February, Shell announced the start of deep-water production at the Lula North field in Brazil. In April, the company announced a significant discovery at the Blacktip prospect in the deep-water U.S. Gulf of Mexico.

Also, in the Gulf of Mexico, in May, Shell announced the start of production at the Appomattox floating production system, months ahead of schedule.

Importantly, in June, the first shipment of LNG cargo was shipped from the Prelude FLNG project in Australia – a flagship project for Shell.

These successful projects have helped to boost the business during challenging macro-economic conditions and provide proof that investment into upstream activity is not something that will slow anytime soon.

Following a strong set of results released for Q1, where cashflow was sitting at $12.8 billion, Q2 also delivered pleasing figures for Shell.

“We have delivered good cash flow performance, despite earnings volatility, in a quarter that has seen challenging macroeconomic conditions in refining and chemicals as well as lower gas prices,” said Shell CEO, Ben van Beurden. “This quarter, we achieved some key milestones, such as the start-up of Appomattox and the first LNG cargo from Prelude. These add to our competitive portfolio, which is expected to generate additional cash in the coming quarters. The resilience of our Upstream and customer-facing businesses and their ability to generate

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SHELL SOUTH AFRICA

cash, support the delivery of our 2020 outlook, which remains unchanged.”

The company announced $10.5 billion of cashflow from operations (excluding capital working movements).

“This, with the average oil price of $69 per barrel for the quarter,” said van Beurden “shows the strength of our strategy and our portfolio.”

DOWNSTREAM In South Africa, Shell remains a favoured brand and a historic investor in the country. Starting operations in the country in 1902, Shell’s operations began as a supplier of kerosene and paraffin. Today, the company has a national footprint with retail sites across the entire country, depots in almost every province, and a shared ownership interest in Durban’s SAPREF refinery alongside BP which refines around

180,000 barrels of oil per day. Shell is recognised as a premier oil company, and an agent of change in South Africa with interests in a range of both upstream and downstream operations.

In August, Lightstone – a data analytics organisation – published a report detailing the largest fuel networks in South Africa. The report finds that the country’s network of more than 4000 service stations is dominated by six major brands: Engen, Caltex, Shell, BP, Total and Sasol.

Shell comes in third place with just over 600 service stations, behind Caltex and Engen with 683 and 998 respectively. Competition is intense, with a number of major international brands jostling for market share. This is why Shell South Africa took the strategy a number of year ago to make service stations about a full product offering,

// SOUTH AFRICA IS A COUNTRY WITH GREAT POTENTIAL AND AN ABUNDANCE OF OPPORTUNITIES // rather than just acting as a fuelling stop for motorists.

An important milestone came for the company in 2013 when Shell embarked on a strategy in partnership with Vida e Caffe – a leading coffee brand in the country – to introduce a range of outlet styles on Shell forecourts. By 2016, more than 100 Shell service stations had integrated Vida e Caffe outlets, and the company reported an increase in the overall basket size.

Buoyed by its success with coffee, Shell

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invested further into quick service food across its network, while also partnering with the likes of Clicks and others to drive loyalty programmes.

The result of this drive was Shell being recognised as one of the country’s most valued brands, according to the Sunday Times Top Brands Awards. On the retail side, the brand was further boosted when forecourt attendant Nkosikho Mbele made global headlines after an extreme act of selflessness saw him pay for the fuel of a driver who showed up at his service station in Cape Town but forgetting her bank card.

“I didn’t care about the money. I saw the gratitude in her eyes. I saw that she appreciated what I did. That made me happy,” he said.

The brand recognition, strong forecourt network, global knowledge, and high-quality product range have positioned Shell as a true industry leader in South Africa and, in August, a Pretoriabased portfolio manager highlighted that Shell’s annual revenue was now equal to South Africa’s entire GDP. As an investor in the country, and a company which claims it is ‘proud to be a part of South Africa’s heritage’,

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Shell is an important partner for local companies and initiatives that aim to better the industry. One such organisation is The ROSE Foundation Recycling Oil Saves the Environment.

Founded in 1994, The ROSE Foundation is a business designed to help reduce the irresponsible dumping and burning of used lubricating oil. Shell is a member of the foundation and, alongside other big names from the industry, invests in the success of ROSE. This year, ROSE celebrated 25 years of success and announced that through its life, more than 1.5 billion litres of hazardous used motor oil has been kept out of the environment.

“Recycling used oil not only protects the environment, but also creates cost-efficient products for our economy, which is exactly what sustainable recycling should achieve,” says Bubele Nyiba, CEO of ROSE. “All recycling models need to be sustainable and need to work towards a circular economy to be viable in the long term. ROSE has proved that recycling protects the environment, creates widespread employment opportunities and

has a knock-on financial benefit for many. ROSE spearheaded Extended Producer Responsibility – an essential requirement in waste management – 25 years ago, long before it was a legal requirement in South Africa. The organisation is a case-study example of a successful EPR programme that was voluntarily implemented,” Nyiba adds.

“With the reality being that one litre of used oil has the capacity to contaminate one million litres of water, coupled with the fact that oil can be recycled many times over, without losing its efficacy – there is an absolute necessity to responsibly collect and recycle used oil. ROSE champions the Petroleum industry’s ‘cradle to grave’ philosophy for used oil management and we are confident of the success of ROSE’s future and look forward to accounting for the collection of many more millions of litres of used oil,” he says.

Shell refines a number of products, through the SAPREF refinery that could be recycled or safely disposed of, including petrol, diesel, paraffin, aviation fuel, liquid petroleum gas, base oil, solvents and marine fuel oil.

SHELL SOUTH AFRICA

UPSTREAM Like many international oil majors, South Africa has piqued the interest of Shell in recent years, after large discoveries off the coast. Total, the French oil and petroleum company, made the Brulpadda discovery in February and has labelled its find in the Outeniqua Basin as a “new world-class gas and oil play.”

// WE STRIVE TO EXPAND OUR DOMESTIC FOOTPRINT AND, ABOVE ALL, WE WANT TO CONTINUE TO BE VIEWED BY OUR COMMERCIAL CUSTOMERS AS THE NUMBER-ONE PREFERRED PARTNER IN THE SOUTH AFRICAN OIL AND GAS INDUSTRY //

Reports suggest the find could result in one billion barrels of oil equivalent.

President Cyril Ramaphosa said of the discovery: “This could well be a gamechanger for our country and will have significant consequences for our country’s energy security and the development of this industry. Government will continue to develop legislation for the sector, so that it is properly regulated for the interests of all concerned.”

In May, it was announced that Shell had plans to acquire stakes in blocks off South Africa’s west coast. Reports suggest that deep-water blocks 5,6 and 7 are of interest to Shell, in the Atlantic off Cape Town.

Shell previously had exploration licenses in the Orange Basin but did not renew them because of policy uncertainty and low oil pricing. The company cited the same reasons for pulling out of shale gas exploration in the Karoo desert, in South Africa’s Northern Cape.

With a number of big companies in the upstream and downstream sectors, and with an economy that has much room to grow, there is certainly potential for Shell in South Africa.

Chairman, Hloniphizwe Mtolo, told

Energy Boardroom that the country represents a real opportunity for Shell.

“South Africa is a country with great potential and an abundance of opportunities, with the business sector excited to be part of the nation’s transformation and build on our economic growth momentum,” he said.

“At a company level, we strive to expand our domestic footprint and, above all, we want to continue to be viewed by our commercial customers as the numberone preferred partner in the South African oil and gas industry.”

Global expertise, local knowledge, very strong reach, and a brand that ranks among the best, Shell is perfectly positioned to grow in South Africa and, as the country changes its legislation to welcome further oil and gas exploration, it looks like a blank canvas for Shell to further stamp its mark.

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