James Ashton: Shell must make its $80bn of assets work harder for shareholders

 

BHP Billiton drew the eye this week with chief executive Andrew Mackenzie’s bold plan to spin off various metals that have lost their lustre, such as manganese and aluminium. It is another reminder that the era of empire-building in the mining world is over.

Royal Dutch Shell takes the opposite view. The promise of $15bn (£9bn) of disposals over the next two years holds out hope for better shareholder returns. Sell-offs in Australia and Italy will soon be followed by disposals in Nigeria, where the company has been flooded with interest in its stake in several onshore oil blocks. Shell is also prepared to sell the Nembe Creek oil pipeline, a regular target for thieves. It demonstrates that its new boss, Ben van Beurden, is intent on turning the page in one of the company’s most troubled territories where theft costs the industry around £1bn a month. But it does not signal that this proponent of Big Oil is prepared to become Not-So-Big Oil. That $15bn target only matches the run rate of sales that Shell was carrying out under former boss Peter Voser.

What is clear is that, greeted with a shock profits warning in January, Mr van Beurden, who shaped up Shell’s chemicals arm, suddenly found he had the platform from which to improve performance. He is unlikely to waste it.

The bigger issue, something that any company in flux finds itself facing, is that Shell must work hard to justify its existence. A figure of $80bn of assets that aren’t generating much for shareholders makes the mind boggle.

For the integrated oil majors, it is a long time since downstream assets provided the cash to plough back into upstream exploits; and longer still since explorers built refineries to process their own oil.

Mr van Beurden must improve returns from a giant spending programme – from $46bn last year to $35bn this – by placing huge bets on emerging technologies that only the biggest integrated players can do. One such is Pearl GTL in Qatar, a plant that converts natural gas into petroleum that is essentially a chemicals complex with a refinery bolted on the back and marries Shell’s technological knowhow with trading expertise.

Playing to such strengths, for example waving the Union flag in parts of the world but playing up its Dutch heritage in others where it pays to be more innocuous, should ensure that Shell doesn’t go the way of the Rockefellers’ Standard Oil.

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