The Royal Dutch Shell Garage Sale
A massive earnings downgrade combined with a new chief executive making his mark have seen Shell commence its garage sale – with some hard and frugal choices being made across its global empire.
CEO Ben van Beurden has been in the job for three weeks, and has already had to announce a 70 per cent decline in earnings for the December 2013 quarter; from $7.3 billion to $2.2 billion. In response, we believe Shell will now accelerate the rationalisation of its non-core assets and some examples of this within Australia follow.
Shell’s 6.4 per cent interest in the Wheatstone LNG project has just been sold to Kuwait Foreign Exploration Petroleum Company (Kufpec) for US$1.14 billion. Located 12 kilometers to the west of Onslow in Western Australia, the Chevron-operated Wheatstone is expected to produce 8.9 million metric tonnes of LNG annually from 2016/2017 (we discussed this in the context of other Australian-based LNG projects, here).
The Arrow joint venture, between Shell and PetroChina, will likely pull out of the proposed 18 mtpa facility that was budgeted to cost $24 billion on Queensland’s Curtis Island. Instead, the partners may look to share the processing facility at Australia Pacific in return for surety of gas supply and possible equity. It seems up to a third of Arrow’s 1,200 staff will be made redundant.
Shell’s refining business in Geelong has been on the market since April 2013, and their 23.2 per cent shareholding in Woodside Petroleum Limited, currently worth US$6.5 billion, will likely be offloaded in the near future.
The frugal management style recently introduced by BHP’s Andrew Mackenzie and Rio’s Sam Walsh seems to be gaining in popularity, and again we ponder the medium-term outlook for some companies within the resource services sector, given $150 billion of investment in the Australian LNG sector is estimated to be at risk, due to rising costs and potential international competition from North America and East Africa.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Raymond Lundie
:
Roger,
as you so often mention its no good having a poor performing company or shares in your portfolio.
Samuel
:
On the Oil and Gas sector, just wondering if the team has had a look at Otto Energy? Or is it too small for the fund? Cheers.
Roger Montgomery
:
Hi Samuel,
Hasn’t popped up on any of our screens…