Shell wants to dispose of eight of the fourteen refineries. A number of chemical plants will also be divested. There will be no refineries left in Africa and South America. Shell will remain active in the extraction of oil and gas, while the company will continue to produce methanol in Brazil. In the Netherlands, the refinery in Pernis and the chemical complex in Moerdijk are here to stay. The German refinery Rheinland will also remain in the portfolio.
Of the refineries to be divested, four are in North America and one in Denmark. Some refineries and chemical plants are already up for sale, a spokesman confirms. One refinery, the one in the Philippines, will be converted into a terminal. More details of the clean-up operation will follow on February 11, when the group comes with an extensive strategic update.
Freeing up money
Shell will also concentrate its efforts in oil and gas extraction, in nine regions: Brazil, Brunei, the Gulf of Mexico, Kazakhstan, Malaysia, Nigeria, Oman, the British North Sea and the oil fields in Texas and the surrounding area. The company reiterated its commitment to strengthen its leading position in natural gas.
Shell wants to focus on its most valuable assets to release money, a lot of money. The group, which was hit unprecedentedly hard by the corona crisis, announced earlier this year that it would cut its dividend by two-thirds. That was a huge blow. Since World War II, the dividend had never been reduced, usually increased.
It was a traumatic decision, as Shell saw the ever-increasing dividend payment as the main lure for investors. So that increase must be restored as soon as possible. In order to send a clear signal to its shareholders, Shell is increasing its dividend again now, this quarter by 4 percent. Van Beurden made another expensive promise to his shareholders: “We are starting a new era of dividend increases.” To immediately add a disclaimer: “Of course on the condition that the board approves this.”
In recent months, the share price fell by two-thirds to the level of 1994. Where shareholders of growth companies are mainly lured by the rapid price appreciation, Shell must retain its shareholders by rewarding them every year. That is why Van Beurden made them an even more expensive promise: in time he will pay out 20 to 30 percent of his cash flow (that is more than the net profit) to the shareholders, as dividend or by other means.
That costs a lot of money, and it has to come from somewhere. Profitability recovered last quarter, but it is still no shadow of what it was before corona was unleashed. Shell earned 6 whole cents per share, but it pays its shareholders 16.6 cents. That is at the expense of the cash in the company.
But Shell needs a lot more money. Debt has to be reduced from $ 73.5 billion to $ 65 billion, because according to its own internal rules, the debts are now so high that the company cannot borrow. As long as Covid is ruining the markets, earnings will not return to old levels. So if Shell wants to fill its cash, it has to sell its assets.
Satisfied shareholders are important. With a good stock market price, the company can finance a major acquisition or other investment with the issue of new shares. At a stock market price of around 10 euros, like now, that is hardly possible.
And major investments must be made. According to analyst Jos Versteeg of InsingerGilissen, Shell only has an oil supply in the ground for eight years and must therefore start drilling or take over. And then there is the enormous task of turning the company into green. This is promised year after year, but very little money has been spent on it so far.
Versteeg is starting to lose confidence in the share, just like the shareholders. ‘I hear more and more people say: what should we do with Shell? Especially in Europe. Especially younger investors. They no longer want that oil. ‘
Chairman of the Board Ben van Beurden and the financial top woman Jessica Uhl, both in jeans, presented the results during a webcast. According to Van Beurden, investments in renewable energy will increase strongly, in wind energy, hydrogen and biomass, but he did not become concrete. As far as Shell is concerned, oil will never be what it used to be: ‘We can safely say that 2019 was the year in which Shell oil production reached its peak.’ In other words, it will never be as much as last year.
Shell already announced in September that around 8,000 jobs (of the 83,000) will be cut, which should reduce costs by 2 billion to 2.5 billion dollars per year. 9,000 people work in the Netherlands.
Profit for the third quarter of 2020: 489 million dollars (416 million euros)
Disastrous second quarter 2020 loss: $ 18 billion.
Profit (normal) third quarter 2019: $ 5.9 billion.
Oil price: less than $ 39 a barrel for the first time since June.
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