Oil Major Royal Dutch Shell is looking to a possible $US40 billion spin-off of non-core assets in a bid to reduce debt following its purchase of British Gas earlier this year which has left it with a $US70 billion debt pile, as well as launching a new renewable energy arm according to UK press reports.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
It is also considering launching a "New Energies" division to invest in renewable and low-carbon power.
Chief financial officer Simon Henry told analysts an initial public offering of Shell's non-core assets is "very much on the agenda", the Sunday Telegraph reported, with a "Baby Shell" an option which could enable the company to benefit from any recovery in the price of oil price in the future.
Separately, The Observer reported that Shell is to establish a separate division, New Energies, to invest in renewable and low-carbon power. Shell's new division would bring together its hydrogen, biofuels and electrical activities but will also be used as a base for a new drive into wind power, according to an internal announcement to company staff.
With $US1.7 billion of capital investment currently attached to it and annual capital expenditure of $US200 million, New Energies will be run alongside the Integrated Gas division
Along with a prospective spin-out of assets, Shell plans to offload $US30 billion in assets over the next three years in an attempt to protect its dividend, after the merger with BG left it with a stretched balance sheet, the Sunday Telegraph reported.
Analysts at Exane BNP Paribas are now concerned that despite its attempts to offload assets, "a dry market for asset sales leaves Shell exposed", according to the report. Reducing Shell's debt burden is "critical for shares to perform", said Aneek Haq, of Exane BNP Paribas, but failure to do so may force management to "bite the bullet" and make a radical move, such as an initial public offering of the parts of Shell's empire it wants to offload.
An IPO of the company's mature assets, which has been dubbed "Baby Shell", would let Shell benefit from a sustained oil price recovery
"There are no prima facie reasons why we would not look at such a monetisation route, if that was the best way to create value," the newspaper quoted the oil major's chief financial officer, Simon Henry, as saying. However, given the weak oil price, it was "not obvious in today's market" where such value would be.
Spinning out the group's mature assets, which has been dubbed "Baby Shell" would let Shell benefit from a sustained oil price recovery. Exane BNP's Mr Haq said this would help to refocus management on core assets and reduce net debt by more than $US50 billion over four years, it reported.
The non-core upstream assets, from markets such as the UK, Norway, New Zealand, Italy and Nigeria, are cash-generative, averaging at $US4 billion a year free cash flow, and adding additional assets from Kazakstan could "prove attractive for shareholders", said Haq.
In 2014, Shell raised $US920 million by spinning off a pipeline of US assets, Shell Midstream Partners.
A decision is not expected soon, but Exane believes an IPO announcement could be made within 12 months, the newspaper reported.
