Analysts say Shell will struggle to spin-off assets at the price it once expected to.
Shell completes its much-anticipated takeover of BG Group on Monday, facing a fresh battle to dispose of $30bn of assets in the next three years as the oil market downturn drags on.
The £35bn mega merger was proposed before the full brunt of the oil market’s 70pc collapse slashed value across the sector, and Shell is under pressure to push through the disposals to maintain shareholder dividends even as profits plummet.
Shell’s reported its sharpest decline in income in 13 years for 2015 as sales collapsed by 97pc to cut profits by 56pc compared to the year before.
But with the oil rout wiping value from across the embattled oil and gas sector analysts say Shell will struggle to spin-off assets at the price it once expected to.
In addition, BG Group’s deepwater Brazilian gas fields – initially seen as the key prize of the merger – now raise investor concerns after allegations of corruption against project partner Petrobras emerged last year.
Allianz Global Investors energy boss Chris Wheaton said that Shell will only be able to sell off its oil and gas production assets to contribute at most 10pc of the $30bn total. Even this will be difficult to achieve “when every oil company has assets for sale,” he said.
Shell said it will “backload” the sale of its assets towards the end of the three year period when the oil price environment might have recovered to some extent, but added that it will focus its disposals on business areas which are “oil price insensitive”.
Mr Wheaton said Shell should be able to divest $10bn of “easy to sell” assets in its refining, lubricants and chemicals business interests. Another $10bn of sales could come from selling off pipelines, he said.
Even failing to achieve much beyond $20bn in asset sales is manageable, he added.
“Let’s say they only sell $20bn, the $10bn difference would add around 1 percentage point to gearing, which is 24pc now compared to a management-mandated ceiling of 30pc, so there is still plenty of headroom,” Mr Wheaton said.
Shell said it has taken the broader risks surrounding its entry into the Brazilian energy market on board throughout the takeover process and believes “a stronger corporate Petrobras will emerge” following its biggest ever corruption scandal.
Mr Wheaton said that bribery allegations which have rocked the Brazilian firm have raised concerns, but the high quality of the fields plays to Shell’s favour.
Analysts at Santander said the giant deepwater fields mean Shell will have little need to invest in oil and gas exploration in the near or medium term, or to invest in highly capital-intensive unconventional projects.
Wheaton added: “[They] in are some of the best fields in the world and are the best assets that Petrobras have, so whatever happens to Petrobras, they will be the last things its stops spending money on – that’s the insurance policy for Shell.”
In addition to its planned asset sales Shell has embarked on an aggressive round of job cuts which will axe 10,000 in total from its global business, most of which will already be made. Around 2,800 job cuts will follow the merger, the company has said.
(Source: The Telegraph)