Shell's Best Bet | Russell T. Rudy Energy LLC
After Shell bought BG Group Plc, for $53 billion, crude prices slumped further. Critics quickly questioned the wisdom of the size and timing of the acquisition. Nevertheless, Shell CEO, Ben Van Beurden, pressed on, stressing the strategic importance of the deal. Now, “World Oil” reports that the market is exonerating Van Beurden. A significant majority of the security analysts which follow Shell see it as having the most financial upside of the 6 largest, non-state, oil companies in the coming year.
The consensus of analysts is that Shell’s stock will appreciate 12.2% over the next 12 months, outpacing Eni at 11%, Chevron at slightly below 8% and Total with slightly above 7%. This is in addition to an increase of 9% in its stock so far this year.
Analysts credit Shell with using more than $10 billion in cash to acquire BG. This enabled the company to keep its debt to equity ratio at roughly 20%, in line with that of rival BP. Alexandre Andlauer, an analyst at AlphaValue SAS in Paris, observes that Shell’s balance sheet is in good shape, even after the BG deal, and that, “There’s been a lot of cost cutting already, and they’ll probably find more synergies from the BG deal than they have announced.” It should be noted that Shell has announced that they have already realized $35 billion in operational synergies after the combination with BG.
Admittedly, Shell’s financial performance has suffered recently. Last year it reported a 53% decline in adjusted net income, wrote down more than $8 billion in assets, and laid-off thousands of employees. However, the strategic upsides seem to validate the BG purchase. Shell now has high margin producing assets in Brazil, Australia, Kazakhstan, Trinidad and Tanzania.
LNG prices are falling and this could present a problem in the short term. However, the BG acquisition diminishes pressure on Shell to spend money on exploration to replenish reserves. Strategically, it appears that the company is well positioned. Brendan Warn, a managing director at BMO Capital Markets concludes, “Shell is among the most well-placed to benefit when oil rebounds, while it gains from improved cash flow when oil stays low.”
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/3/9/shell-seen-as-best-oil-major-wager-by-analysts-after-bg-deal .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
