The Times: Shell set to step up disposal of assets
By Carl Mortished, International Business Editor
April 30, 2004
SHELL is expected to accelerate a multibillion-dollar programme of asset sales in an effort to meet the cost of adopting a dramatic policy U-turn of handing cash back to investors.
The oil company yesterday revealed a new policy aimed at appeasing investors, and analysts believe Shell could further increase the size of the cash return by selling North Sea assets and non-core business. The oil company has begun the process of making amends with shareholders angered by the reserves misreporting scandal, announcing better than expected profits of $4.25 billion (£2.4 billion) for the first quarter and revealing plans to buy back some $2 billion in stock.
The decision to buy in stock reverses Shell’s previous policy of staunch defence of the balance sheet and is being made as the company comes under pressure to increase spending on its battered upstream oil production business. Tim Morrison, Shell’s acting chief financial officer, said the company would increase spending by $1.5 billion to between $14.5 billion and $15 billion this year.
Shell has already made several disposals this year, including a share stake in Sinopec, the Chinese oil company, a refinery in Delaware and an exploration asset in Angola.
The proceeds will more or less finance the already promised $2 billion in share repurchases and analysts believe that Shell could fund further buybacks by selling off declining oilfields in the North Sea and non-core businesses, such as power generation or parts of its chemicals portfolio.
“I honestly think they will look at the BP model,” said one leading City analyst. “Look at the power generation joint venture with Bechtel. Is that core business? They could look at rationalising their chemicals business. In the North Sea, they could get rid of the Brent field which is declining at 10 per cent per annum and reinvest elsewhere.”
On Tuesday BP revealed plans to sell half of its chemicals division, with the intention of returning the proceeds to investors. It has also sold Forties, the North Sea field.
Investors welcomed evidence that Shell’s cash machine is still functioning smoothly and Shell Transport stock rose 2 per cent to 401p before slipping back to 393p.
Shell has abandoned attempts to restore its gilt-edged debt status, which was stripped from it this month after revelations about mismanagement in the internal report on the misreporting of reserves. Mr Morrison said: “We are not going to chase to get the triple-A back in short order.” He suggested that the loss of triple-A bond rating would have a negligible impact on Shell’s cost of debt.
Shell’s chairman, Jeroen Van der Veer, said he was pleased with the first-quarter figures which were “not all about high oil prices”. Shell’s earnings of $4.2 billion were down 18 per cent on last year’s first quarter but excluding last year’s exceptional gain for the sale of a stake in Ruhrgas, they were up 9 per cent.