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Derek Hudson, vice president, country chair, Shell T&T
1. Shell and BG Group combined 18 months ago, what has it been like integrating these corporate identities?
The combination between Shell and BG Group was hailed as one of the most important developments in the global energy sector for a generation.
Integration on this scale is naturally complex and challenging, particularly as it coincided with the sharp decline in energy prices. There are so many interdependencies in mergers like this and you must keep your eyes on every single aspect to ensure a successful transition.
We used a concept called “best of both” which–as the name implies—allowed us to look at the systems and ways of working of each of the companies and find a way to integrate the best practices of both. There was a great deal of effort that looked at how we could capture value from the both companies and create synergies that would lay the foundation for us to achieve the short- and longer-term milestones that the combination was rooted upon.
While the formal combination is completed, this concept of “best of both” continues to be an aspiration for us in our daily activities.
For example, BG Group—because of its smaller size—was known to be an agile company and Shell—a much larger organisation— is well-known for its wider collaborative approach.
Finding and maintaining that middle ground, a year and a half since the merger, is still an everyday goal as we seek to learn from each other to drive and become a simpler, nimbler and more pragmatic organisation.
Another critical aspect of this combination, of course, has been the merging of the corporate cultures of Shell and BG Group, but one in which I think we have made some very significant strides.
Creating a corporate culture that respects the concept of “best of both” has been a major focus area for us.
Managing people through change is one of the greatest challenges that a leader can face and we used the opportunity of the combination to begin building a corporate culture from ground zero so to speak; one that intrinsically promotes our shared core values of honesty, integrity and respect for people while also reflecting the nuances of our local operating environment.
We displayed strong collaboration in ensuring that the combination was a success.
We adapted to become more purpose driven, reduced the cost base, increased production and improved staff morale during the difficult times. It is one of the highpoints of my career to have witnessed and participated in this event that saw two great companies combine to become an even greater one.
We still have some way to go to operate our business at full capacity but we are on the right road.
2. What is Shell’s strategic vision for its operations in T&T?
Our global strategy is spelt out in our statement of purpose:
“Powering progress together by providing more and cleaner energy solutions” and reflects our focus to drive higher returns by investing in compelling projects, selling non-core assets and driving down costs to reshape Shell into a simpler, more resilient company while ensuring our focus on safety, people, the environment and on sharing value with society.
How does this translate into our vision for T&T?
T&T continues to offer an excellent model for value generation via gas monetisation and midstream activities (LNG and petrochemicals). This is built on a stable political and commercial environment which respects contract sanctity, actively encourages foreign investment and supports integrated gas development.
As a core part of the integrated gas pillar within Shell, our aspiration is to deliver a competitive business underpinned by a conveyer belt of new gas opportunities in the short term of one to four years, the medium term of 5-10 years, and the longer term, greater than 10 years.
Our strategy is based on our upstream building blocks on the east and north coasts of Trinidad, coupled with our cross-border initiatives with Venezuela via supply to the strong and stable demand of the petrochemical and LNG markets. We are also committed to an extensive exploration programme using the most advanced technology and experience from other Shell assets around the world, which will further feed the development funnel.
This will be enabled by a strong talent pipeline and a relentless commitment to keep our people, our assets, and our environment free from harm.
Our strategic vision for T&T goes beyond exploring for and selling natural gas and revolves around our commitment to sharing value with society, a key component of our country strategy and one that is truly embedded into our operations.
To be a truly successful company, everyone has to participate, directly or indirectly, from our success—from the revenues we pay to government; to the work we are doing with our supply chain; to the wide number of training opportunities for our employees; to the many innovative developmental programmes we work on with our partner communities and NGOs throughout the country.
3. A global transition appears to be taking place towards more renewable forms of energy. How is this likely to affect Shell’s current business model?
We see the energy transition as a real opportunity. There have been huge advances in the field of renewables. With wind and solar, costs have come down rapidly in recent times and are predicted to fall further. All of this is positive news for the world and we must accelerate. This change offers many opportunities for energy companies including Shell.
If I can paraphrase my CEO, Ben Van Beurden, who says the energy transition is regularly portrayed in terms that compare it to a revolution, a moment in time when everything changes. But, he says, in reality, different countries and different sectors will advance at different speeds. In essence, we are not talking about a moment in time, but of a change that will take place over generations.
It is in this context that we view the energy transition, a continued focus on natural gas, the cleanest burning of the fossil fuels in partnership with more renewable forms of energy, combined with new policies which encourage their growth. This is the basis of our business model.
Here, in T&T, we are at the very early stages of looking at the feasibility of renewable energy in the local context. We recently were very fortunate to have some students from the prestigious Delft University in the Netherlands lead a study for us. They spoke to several stakeholders including our own universities and we are at the stage now of potentially developing this into a commercially viable venture.
Still early days, but I am excited at the prospect and we will share more with you as we progress.
4. Shell and the government are aligned in cross-border gas projects with Venezuela.
Where are those projects in the stream of time?
Shell has interests in two gas developments with Venezuela. Both may be fundamental to our medium- to long-term strategy for T&T.
The first is the proposed Loran Manatee field development.
Our purchase of Chevron’s Trinidad assets in June this year was critical since it moved Shell from ~13 per cent to just about 27 per cent in the unit.
Discussions are ongoing with the two governments to conclude the unitisation and unit operating agreement at the earliest opportunity in keeping with our production aspirations for the next decade.
Our other opportunity, which has already received extensive media coverage lies in the Mariscal Sucre basin, adjacent to Trinidad’s the North Coast Marine Area referred to as the Dragon development. This will see Venezuela gas flowing off the north coast.
We signed a heads of agreement (HoA) with Petróleos de Venezuela SA (PDVSA) and the National Gas Company of T&T (NGC) on March 15, 2017, and this allows us to progress a joint technical and commercial assessment of Dragon gas reserves.
Since that time, there have been regular tripartite meetings of the joint co-ordinating council to progress the gas sales agreement.
5. Shell has made significant capital investments in T&T. What are some
impediments that could hinder the return on those investments from being fully realised?
Rather than looking at impediments, I would like to paint a picture of what an energy major operating in T&T needs to do to make an adequate return on its investment and be successful in the long term, while partnering successfully with the people of T&T.
We define success not just from a financial perspective, but based on our premise of shared value with all stakeholders.
Shell has made and will continue to make substantial investments in T&T in the future. This is capital that we compete for within our own group, against more than 70 countries and hundreds of other projects and we have been successful to date in doing so.
This is because the advantages that Trinidad offers are recognised. We are a mature, export oriented gas industry with a ready market via large petrochemical and liquefaction capacity and a stable political and contractual environment.
Is more required?
We need an internationally competitive investment environment, one that recognises the significant changes to the global and local energy environment; and we need to make these changes quickly.
Significant opportunities exist to restore supply, and we believe that decisive action by all stakeholders can reverse today’s predicaments. We are encouraged by the discussions that are being held with the relevant authorities and the decisions that are being made, but time is of the essence.
We are excited to play a leading role in unlocking this country’s future oil and gas potential by building a stronger competitive position in the country. Collaboration is key to unlocking further potential in country and we are encouraged by ongoing discussions that are responsive to positive outcomes and to the “lower for longer energy price” environment in which we exist.
In the last 12 months, we have been able to prepare the business for growth with a robust portfolio of short and long-term opportunities. There are risks to this aspiration but the foundation is now well set, with the potential to be a sustainable contributor to T&T’s economy through to the end of the next decade.
The story of T&T is similar to many of Shell’s heartlands, a story of mature producing assets with a funnel of opportunities of varying size and risk.
We have enjoyed great success in other Shell heartlands like Malaysia, Brunei, Oman and Nigeria by rejuvenating the exploration portfolio and reducing the time between exploration discovery, appraisal and first gas, through leveraging our technological strength and existing infrastructure and challenging long-held dogmas and accepted ways of doing things.
We plan to use a similar approach here and look forward to similarly robust results.
Deputy Head of News-Business
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