Shell says can make BG deal work despite weak oil price

3 Nov 2015 | Author: | No comments yet »

Royal Dutch Shell Plc Earns Buy Rating from Deutsche Bank (RDSA).

The deal has come under fire since it was announced in April from some investors and analysts concerned that the Anglo-Dutch oil giant has agreed to pay too much amid the biggest slump in oil prices since the 1980s.In a stock market statement, ahead of today’s ‘management day’, the company said it is delivering on commitments to reduce costs and spending by US$11bn this year.Deutsche Bank restated their buy rating on shares of Royal Dutch Shell Plc (LON:RDSA) in a research report report published on Thursday, reports.

Chief executive Ben van Beurden has repeatedly defended the logic of the deal, telling investors in September that only “something cataclysmic” could derail the acquisition. In its strategic update Tuesday, the company highlighted that since a large proportion of the purchase will be paid for in equity, the effective price fluctuates with movements in Shell’s share price.

This would take the deal’s total synergies to US$3.5bn, Shell added. “BG rejuvenates Shell’s upstream by adding deep water and integrated gas positions that offer attractive returns and cash flow, with growth potential,” van Beurden said. Deutsche Bank analyst Lucas Herrmann, in a note, pointed out that whilst there a couple of exceptions this morning’s statement was a re-iteration of many of the financial and structural points that Shell has already made to market. He did, though, add: “It is encouraging that Shell should see some $4bn of capital efficiencies in 2015-16 but these are already encapsulated in 2016 combined capex guidance of not more than $35bn.” It said it believes its tie-up with BG will reduce operating costs by $2 billion and cut its exploration spend in 2018 by $1.5 billion, a 40% reduction from previous estimates of savings.

The reorganization “facilitates our planning for the integration of BG post-completion of the recommended combination and that will facilitate subsequent streamlining of the portfolio,” Shell said. Upstream joins the operating segments Upstream International and Upstream Americas, which are participated in searching for and recovering crude oil and natural gas, the liquefaction and transport of gas, the extraction of bitumen from oil sands and converting it into synthetic crude oil, and wind energy. Downstream segment is engaged in manufacturing, supply and marketing activities for oil products and substances, alternative energy (excluding wind), and carbon dioxide (CO2) direction.

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