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Shell powers ahead with plan to clear out $15bn of its assets

The Business: Shell powers ahead with plan to clear out $15bn of its assets

“Underspending in exploration and production throughout the 1990s is seen as partly to blame for the 4.35bn barrel reduction in reported reserves that made this year one of the worst in Shell’s 97-year history.”

By Richard Orange

22 August 2004

Changing fortunes: Shell is aiming to regain its competitive edge by selling unprofitable assets in Europe and Latin America

TROUBLED oil giant Royal Dutch/Shell has launched a $15bn (£8.3bn, €12.2bn) clear-out of its worst-performing assets, in a move to raise funds to bring its performance back in line with competitors.

While investors are waiting until end-September for the new management’s first strategy briefing, the company’s programme is moving ahead, with culls in the US and Europe bringing disposals to $3.6bn this year.

Another $1.4bn of sales should be completed before September’s briefing, with the disposal of Shell’s Swedish and Spanish fuels business expected to follow June’s sell-out in Portugal.

The programme is leading some analysts to speak of a turnaround in the company, with analysts at Merrill Lynch switching the company to a buy rating on Friday.

Merrill Lynch analyst Mark lannotti said: “We expect further streamlining of the business. We believe total disposals over 2004-05 could amount to $ 15bn. Asset restructuring is in our view the only serious quick-fix option.”

Another analyst added: “It gives them quite a bit of money to plough into upstream [exploration and oil production] investments. If they want to compete against BP and Total they need to reinvigorate that part of their business.”

Underspending in exploration and production throughout the 1990s is seen as partly to blame for the 4.35bn barrel reduction in reported reserves that made this year one of the worst in Shell’s 97-year history.

South America is the latest to come under the hammer, with some $lbn worth of petrol stations and refineries for sale in Argentina and Brazil, after last week’s sale of Shell’s Peru retail network.

Last week Venezuelan energy minister Rafael Ramirez told reporters the state oil firm PDVSA planned to buy Shell’s assets in Argentina – some 1,000 petrol stations and 100,000 barrels per day (bpd) of refining capacity – as a joint venture with Argentina’s new state energy company, Enarsa. Ivan Sandrea, a Venezuelan analyst at Merrill in London, said: “I think ifs true. Mouths have become fairly loose at PDVSA under Chavez, so they just came out and said it.”

The company’s Venezuelan fuels business has been waiting for a buyer since February.

Full details of Shell’s disposal plans will wait until September, but the company has said it aims to sell 15% of its global fuel and refining business, meaning there are some $2bn in assets still to go.A spokesman said: “We do have an active portfolio management strategy in the downstream. We want to re-establish ourselves as the leader in the oil products division.” Sales in the chemicals and gas and power divisions are also expected,

Shell announced at its results that it was considering floating off or selling its $2.5bn stake in plastics maker Bassell. Industry insiders believe its 68% stake in power business Inter-gen, worth about $2bn, maybe sold, as a whole or as individual power stations, within the next six months.

The Business understands potential buyers received data last week for the company’s Ketch and Schooner gas fields in the North Sea, but a serious upstream sale programme will have to wait

until a lower oil price.

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