First Post-BG Shell Update Likely to be 'Short on Specifics'

Shell’s first strategic update after its $55 billion acquisition of BG Group “is likely to be long on thematics and short on specifics,” according to oil and gas analysts at Jefferies.

“We expect the company will focus on the re-balancing of the organic cash cycle, the repair of the balance sheet and the quality of the deep-water and LNG portfolios,” said Jefferies in a brief research note sent to Rigzone.

Debt reduction is Shell’s highest priority for free cash flow, followed by dividend growth and then share repurchases and/or incremental investment. At the end of 1Q16 gearing stood at 26 percent and net debt was $69 billion; Shell’s objective is to reduce gearing to about 20 percent. Achieving this target would require a reduction in debt of $27 billion by the end of 2017 or $22 billion by the end of 2018 – and thus likely requires significant success in the divestiture program,” Jefferies added.

At the start of the year, Shell revealed that its takeover of BG would result in the reduction of around 10,000 workers across both companies.

Shell’s operating costs reduced by $4 billion, or around 10 percent in 2015, and the company expects its costs to fall by a further $3 billion this year. Combined 2016 capital investment for Shell and BG is expected to be $33 billion, which is around a 45 percent reduction from combined spending, which peaked in 2013.

Concluding its analysis on Shell, Jefferies stated that it believes the company “offers the most attractive valuation amongst the super-majors, albeit with some risks”.

Shell is scheduled to provide its latest strategic update June 7.


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