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Shell cuts cost for the rest of the decade after takeover

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By DAVID SHANDPUBLISHED: 00:03, Wed, Jun 8, 2016

The company set out its plans to create a “world class investment case” for shareholders following its £35billion takeover of fellow FTSE 100 oil and gas giant BG Group, which will include more asset sales and cost-cutting.

In its presentation to investors, Shell said it would squeeze an extra $1billion (£690million) in savings from the BG deal from an earlier $3.5billion forecast.

It aims to sell 10 per cent of its oil and gas production by exiting operations in up to 10 countries.

Some $30billion of assets will be offloaded by 2018, with capital investment limited to $25-30billion a year to 2020.

Spending this year is expected to be $29billion, 35 per cent down on what Shell and BG were spending in 2014.

Shell chief executive Ben van Beurden said he expects demand for oil and gas to be “robust for decades to come” in a long-term transition to lower carbon fuels.

He added: “As well as low prices today, we are seeing higher levels of price volatility, due to geopolitical change, the speed of information flows and the pace of innovation.

“By capping our capital spending to 2020, investing in compelling projects, driving down costs and selling non-core positions, we can reshape Shell into a more focused and more resilient company, with better returns and growing free cash flow.

“The BG deal is an opportunity to accelerate the reshaping of Shell. Integration is gathering pace, and today we expect to deliver more synergies, and at a faster rate.”

Shell’s growth priorities over the medium term include deepwater projects in Brazil and the Gulf of Mexico, as well as its chemicals operations in the US and China.

But it will slow new investment in its integrated gas business, which it said had reached “critical mass” following the BG acquisition.

Bernstein analyst Oswald Clint said: “The message is clear.

“This is a company set to pay a sustainable dividend and will only invest in high return deepwater and chemicals going forward with a capital spending cap.”

Shell shares rose 52½p to 1764½p.

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