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Why Shell Is Selling Its Norwegian Downstream Business

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Screen Shot 2014-06-23 at 11.37.41Royal Dutch Shell has decided to sell off of its Norwegian downstream business to Finland’s ST1 in order to improve profitability and achieve its divestment targets

Published: Dec 18, 2014 at 5:21 pm EST

Royal Dutch Shell plc. (ADR) (NYSE:RDS.A) has decided to sell its Norwegian downstream business comprising commercial fuels, retail and logistics businesses. The company is planning to sell the stake to ST1, a fuel company in Finland. No further details have been disclosed so far.

A Retail Brand License Agreement is also expected to be part of the deal. This particular agreement would make sure that the Shell brand remains highly visible in the Norwegian market through a distributor. The deal is yet to be approved by regulatory authorities and is expected to be confirmed next year. Shell will also run its Norwegian aviation business in a 50-50 joint venture with with ST1, which already operates Shell pumps in Sweden and in Finland.

Crude oil prices have fallen 45% since June and even though Shell has been experiencing lower cost of production in its downstream business segment it has been cutting back on its operations.

The main reason is to focus more on the upstream sector and reduce its concentration on the downstream sector. This is apparent from the strategy that the company has adopted recently, like the divestment of its downstream assets including refineries in Australia, France, Germany and the UK.

The strategy has seem to work for Shell and it was able to increase its overall adjusted net income to $5.84 billion in the third quarter of fiscal year 2014 (3QFY14, ending September 2014) compared to the net income of $4.73 billion last year. Net income for the upstream business segment was $3.94 billion compared to $0.9 billion last year. The downstream segment’s income fell to $1.6 billion compared to $3.2 billion income in the same quarter last year. The company wants to divest assets worth $15 billion by the end of the next year

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