Shell plans to sell assets worth $30 bn
09 March 2016
European energy giant Royal Dutch Shell Plc is planning to sell assets worth $30 billion in a bid to bolster its balance sheet, which ratings agency Fitch downgraded after the Anglo-Dutch oil giant completed its $49-billion acquisition of BG Group last month.
The majority of the assets to be sold are in the midstream and downstream operations of the company, which may include pipelines in the US, its stake in a gas project in Trinidad and Tobago, and Shell's stake in oil and gas fields in India, according to a Bloomberg report.
The move comes after London and Hague-based company sold assets worth $20 billion between 2014-1015.
But analysts question the timing of its current proposed sale when oil prices have crashed to around $30 a barrel. When Shell sold assets worth $20 billion in 2014-15, oil prices were hovering around $100 a barrel.
Shell is betting on its acquisition of BG Group to maintain dividends and increase oil and gas production at a time when cash flow is shrinking.
Shell's shareholders in January approved its plan to buy BG, which has oil fields in Brazil and natural gas assets from Australia to Kazakhstan, despite the 50 per cent tumble in crude prices since the deal was announced in April last year.
Plummeting crude prices have hit oil companies across the world and slashed earnings of other oil majors, including Exxon Mobil Corp and BP Plc, retarding investments in new oil exploration while at the same time hitting investor returns.
The London-listed company, like other rivals, has scaled down on spending on new projects. It recently announced that it would reduce its planned capital spending over the next three years by $15 billion.
Shell reduced operating costs by $4 billion, or about 10 per cent last year, and plans to cut them by $3 billion this year end. It expects $33 billion of capital spending this year following the combination with BG, lower than a previous estimate of $35 billion.
The average price of benchmark Brent in the first quarter was $36.08 a barrel, the lowest since 2004 and analysts believe that oil price may not return to three-digit figures at least till 2020.
For Shell, despite the cushion of its large refining and chemicals business, each $10 change per barrel in the oil price has an impact of about $3.3 billion on annual earnings.
Shell is one of the world's largest energy companies and one of the six oil and gas super-majors with a market value of about €171 billion and annual revenues of $421 billion.
The Anglo-Dutch company operates in over 70 countries, produces 3.1 barrels of oil equivalent per day. It is also among the world's largest natural-gas companies and has sold 24 million tonnes of LNG last year.