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By Ben Levisohn:
ExxonMobil (XOM) has enough problems with the price of oil dropping, but it may have on in a large Dutch gas field known as Groningen.
Exxon runs the field with Royal Dutch Shell (RDS.A), which is being blamed for an increase in the number of earthquakes in the region. That’s led to caps being imposed on production, and could eventually lead to a shutdown altogether say Raymond James analyst Pavel Molchanov and Muhammed Ghulam. They look ahead to the Groningen endgame:
An eventual field shutdown, which cannot be ruled out, would erase nearly all of Exxon’s organic growth through 2020. Next week, the top Dutch administrative court will hear NAM’s appeal against the new directive. Given that lower courts have backed the government’s policy of caps, we doubt the appeal will succeed. For Exxon, compliance would translate into an incremental reduction of 72 MMcf/d from 4Q17, erasing 0.7% of the company’s gas volumes, and 0.3% of company-wide oil and gas volumes. While not the end of the world, it needs to be seen in the context of a company with a 1% targeted organic growth rate. More worryingly, some local activist groups in the province are advocating that production be halted altogether. The government is not in favor of such a radical step, but the current policy essentially seems to amount to a controlled phase-out. Whether it occurs abruptly at some point, or more gradually, a full shutdown – with the resulting loss of 2.9% of Exxon’s production – cannot be ruled out over the medium term.
Shares of ExxonMobil have dropped 1.5% to $80.83 at 10:34 a.m. today, while Royal Dutch Shell has fallen 1.3% to $52.97. The Energy Select Sector SPDR ETF(XLE) has slumped 1.8% to $64.97.
Posted in: Business Principles, Environment, Exxon Mobil, Groningen Earthquakes, Human Rights, Litigation, NAM, Netherlands, Royal Dutch Shell Plc, Shell.
Tagged: Environment · Gas · Gulf of Mexico · Litigation · Royal Dutch Shell Plc · Shell
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