Shell Beats Target for BG Synergies

Anglo-Dutch major Shell has exceeded several targets it set itself when it plunged into a deal to buy UK BG two years ago and which was executed in early 2016, its senior executives said February 2 at the company's 4Q 2016 results.

Nevertheless there are bumps on the road, including the low spot price of LNG relative to expectations when the Australian Gorgon project was sanctioned – and whose final cost was a third higher than budgeted; above-surface corporate difficulties involving its partner Petrobras in Brazil; and the threat of US action against Iran. And while Russia remains important to Shell, and therefore its relationship with Gazprom, there is still no news on its plans to invest in Nord Stream 2.

Including the $5bn or so announced February 1, some $15bn of divestments are now completed, announced, or in progress - so halfway to its target of $30bn -- after less than one year. Capital expenditure is now less for Shell alone than it was for Shell and BG combined two years ago, with some $10bn taken out of spending in both 2015 and 2016. Other synergies, including jobs and office closures, were achieved in one year, against the three expected.

Capex is expected to be around $25-$30bn/yr until the end of the decade. The target for debt gearing is 20%, compared with 28% now; or $50bn.

Last year, 2016 was the implementation year for the new BG; this year is when Shell will follow through, said CEO Ben van Beurden. The company says it now has a bigger debt burden after the deal, while the oil price remains low. "We are managing the downturn," he said.

CFO Simon Henry, speaking at his last results conference before retiring in early March, praised the vision of CEO Ben van Beurden for taking on a deal at a time of global retrenchment.

The company took some notional impairments, based on the difference in value attributed to some assets by BG and by Shell; but nothing on the scale of ExxonMobil's $2bn against its Rocky Mountains shale. However Shell carries out its major write-down analysis in time for the 3Q results and so would not have included those.

The company's average liquids price was 15% up, at $44.54/b and the average gas price was down 5% to $4.03/'000 ft³. The fall in the average LNG price did not offset the rise in the oil price. "Earnings benefited from higher production volumes related to the contribution of BG assets, start-up of Gorgon and improved operational performance which more than offset the impact of the accounting reclassification of Woodside," the company said. Profits attributable to shareholders on a current cost of supplies basis was $1bn, down from $1.8bn in Q4 2015.

Henry did not say where he would move on to after Shell but said he was interested in politics while his personality type suggested a career in journalism.

William Powell