Shell to exit up to 10 countries in cost cutting drive after BG deal

[June 07, 2016]  By Ron Bousso and Karolin Schaps

LONDON (Reuters) - Royal Dutch Shell will exit oil and gas operations in up to 10 countries in a drive to deepen cost cuts as it weathers weak oil prices and has to pay down debt following its $54 billion acquisition of BG Group.

The company is active in more than 70 countries and said it would like to focus on 13 important nations where it is making good returns, including Brazil, Australia and the United States.

"Our portfolio is probably more diverse and spread around the world, and in some parts more mature, than we would like it to be," Shell's Chief Financial Officer, Simon Henry, told reporters on Tuesday.

The move, which includes the sale of 10 percent of its oil and gas production assets, will make Shell a smaller company that offers investors access to a more gas-heavy portfolio than some of its rivals such as Exxon Mobil.

Presenting its strategy following the close of the BG deal in February, the Anglo-Dutch company outlined plans to target annual spending of $25 billion to $30 billion until the end of the decade, or less if oil prices remain below $50 a barrel.

It lowered its planned 2016 capex to $29 billion, with exploration set at $2.5 billion, in a third cut from an initial $35 billion and raised its target for savings from the integration of BG to $4.5 billion, up $1 billion from previous guidance.

A main source for cost savings, including 12,500 job cuts this year, will come from overlaps in operations in areas including Australia, Brazil and the North Sea.

Chief Executive Officer Ben van Beurden hopes the new cuts will help boost Shell's share price, which has underperformed rivals since oil prices started to collapse in mid-2014.

He promised shareholders Shell would generate double-digit returns for investors by the end of the decade.

"We need to be number one when it comes to total shareholder return," van Beurden told journalists after the company announced a 10 percent return in capital employed by the end of the decade, up from around 8 percent between 2013 and 2015.

Under this scenario, Shell assumes oil prices will average in the mid-$60s in 2018.

"With all promises to shareholders maintained and lower forward capex than many thought possible, Shell in their own words is 'creating a world class investment case' which we agree with," said analysts at Bernstein, who rate Shell's stock as 'outperform'.

Shell's shares were up 2.9 percent at 1033 GMT.

The company also said on Tuesday its medium-term growth priorities were deepwater projects in Brazil and the Gulf of Mexico and its chemicals division, particularly in the United States and China.

A logo of Shell is pictured at a gas station in the western Canakkale province, Turkey April 25, 2016. REUTERS/Murad Sezer

Deepwater production could double to some 900,000 barrels of oil equivalent per day in 2020, Shell said.

It also gave the go-ahead for investing in a new cracker and polyethylene plant in the United States, one of a handful of investment decisions it will make this year as it grapples with the sharp drop in oil prices over the past two years.

COUNTRY EXITS

Shell will slow new investment in its integrated gas business, which includes its liquefied natural gas (LNG) operations, which it said has "reached critical mass following the BG acquisition".

The merger has turned Shell into the world's second biggest international oil company behind Exxon Mobil and the top LNG trader.

In the long term, the company said it would target shale oil and gas production in North America and Argentina as well as biofuels, hydrogen, solar and wind in a new energies unit.

Shell plans to sell $30 billion worth of assets around the world by around 2018 and quit operations in 5 to 10 countries to reduce its balance sheet gearing which soared to 26 percent following the BG deal. It also has announced it plans to implement a share buyback programme.

It did not say which countries it might exit. Reuters has reported that Shell plans to sell its assets in Gabon.

Shell targets $6-8 billion in sales in 2016. CFO Henry said the company expects to make at least $3 billion mainly from downstream disposals this year as refining, infrastructure and retail are more immune to oil price fluctuations.

However, sales of oil and gas production assets have dropped through the downturn amid high oil price volatility.

(Editing by Mark Potter, Jason Neely and Alexandra Hudson)

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