Shell point out the highly complementary overlap of BG Group, particularly in Liquefied Natural Gas and BG’s deep water assets in Brazil. Gearing is likely to rise to circa 20% in the short to medium term, with disposals to reduce this a priority. The group talks of a £30bn disposal programme emanating from this transaction, with assets departing from both businesses. The group insists that the BG acquisition has been triggered at a low point in world oil prices, given Shell’s historic long term base case range of oil trading at US$70 to US$90 per barrel, albeit somewhat optimistic in the near term. All long term (that is to say twenty years) planning criteria are calculated off this base case, driven as it is by accelerating consumption arising out of growing globalisation and natural depletion rates. Increasing efficiency is seen as entering the shale industry, where some project deferral has already been announced. The dividend is regarded as sacrosanct for now, reiterated yet again in the recent Q4 results. The re-introduction of a scrip alternative during this shorter term period of depressed oil prices is likely to garner appeal; the 4th Quarter dividend saw $1.2 billion of the $3 billion dividend taken as scrip. Management continues to be high grade and long lasting and the income stream that the current oil market weakness grants, remains superior.
Geordie Kidston is a beneficial owner of Royal Dutch Shell.
