Shell sets new strategy, updates BG synergies target

Hague-based LNG giant, Shell on Monday revealed an updated strategy as the company is battling with low oil and gas prices and following the takeover of BG Group.

Shell announced an increase in expected BG deal-related synergies, from the $3.5 billion set out in the prospectus, to $4.5 billion on a pre-tax basis in 2018, an increase of some 30%.

“We expect to achieve and exceed the $3.5 billion synergies prospectus commitment earlier than expected, in 2017, when synergies should be $4 billion. Our other deal-related financial commitments to shareholders in the form of asset sales, debt reduction, and dividends, followed by share buy-backs, are unchanged,” said Ben van Beurden, CEO of Shell.

Setting his remarks in the context of a volatile industry backdrop, van Beurden said that he sees “important opportunities for Shell from the substantial and lasting changes underway in the energy sector“.

“We expect to see robust demand for oil and gas for decades to come, in a global energy system in a long-term transition to lower carbon fuels. As well as low oil prices today, we are seeing higher levels of price volatility, due to geopolitical change, the speed of information flows, and the pace of innovation in our sector.”

According to the CEO, by capping Shell’s capital spending in the period to 2020, investing in compelling projects, driving down costs and selling non-core positions, “we can reshape Shell into a more focused and more resilient company, with better returns and growing free cash flow per share“.

Capital investment will be in the range of $25-$30 billion each year to 2020, as the company aims to improve capital efficiency and ensure a “more predictable development funnel” for new projects.

Investment for 2016 is expected to be $29 billion, excluding the purchase price of BG, some 35% lower than the pro-forma Shell-plus-BG level in 2014.

“In the prevailing low oil price environment we will continue to drive capital spending down towards the bottom end of this range; or even lower if needed. In a higher oil price future we intend to cap our spending at the top end of the range,” van Beurden said.

“Asset sales, as planned, are expected to be $30 billion for 2016-18. We have earmarked up to 10% of Shell’s oil and gas production, including 5 to 10 country exits, for disposal. We expect to make significant progress on the first $6-8 billion of this programme in 2016,” he said.

As a result of Shell’s portfolio development and investment, the company expects to see an improvement in returns in the next few years, its debt reduced, and “significant” growth in free cash flow, across a range of oil prices.

“For example, organic free cash flow could reach $20-$25 billion and return on capital employed some 10% around the end of the decade, assuming $60 oil prices. This compares to 2013-15 averages of $12 billion and 8% with average $90 oil prices,” according to van Beurden.

Integrated gas

Integrated gas, which was previously a growth priority for Shell, has reached “critical mass” following the BG acquisition and planned growth in liquefied natural gas, particularly in Australia, van Beurden said.

“The pace of new investment will slow here, and integrated gas will now prioritise the generation of free cash flow and returns.”

First quarter earning for Shell’s Integrated gas segment were $994 million compared with $1,491 million a year ago.

LNG liquefaction volumes of 7.04 million tonnes increased by 14% compared with the same quarter a year ago, mainly reflecting the impact of the acquisition of BG, including an increase associated with the ramp-up of Queensland Curtis LNG in Australia, Shell said in its first quarter report.

Shell’s LNG sales volumes rose by 25% to 12.29 million tonnes, due to the acquisition of BG.

The combined group’s equity LNG capacity is expected to be 44 mtpa in 2018, compared to Shell’s 26 mtpa in 2014.

LNG World News Staff