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Shell share price: Barclays sees group in strong position after BG deal

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by Mary MorleyTuesday, 15 Mar 2016

Royal Dutch Shell’s (LON:RDSA) recent acquisition of former London-listed peer BG Group will give it more levers to pull to weather the downturn in oil prices, analysts at Barclays have said. The bank, however, cautions that the enlarged group’s work is ‘far from over’.

Shell’s share price has been subdued in London this morning, having shed 0.48 percent to 1,658.50p as of 08:11 GMT, largely in line with losses in the broader market, with the benchmark FTSE 100 index having fallen 0.55 percent to 6,140.50 points. In the year-to-date, the energy group’s shares have added 8.65 percent, as compared with a 1.61-percent dip in the Footsie.

Barclays reiterated its ‘overweight’ rating on Shell yesterday, with a price target of 2,450p. The move came after the energy major released its annual report last week where the company warned that if oil and gas prices remained at the levels observed in the beginning of the year, there was potential for losses at its upstream and integrated gas segments.

“A negative reserve replacement rate alongside negative finding and development costs rarely make for good reading in an annual report,” the bank’s analyst Lydia Rainforth was quoted as saying. “All of this however can be explained by price effects and more encouraging for us was the 15-percent decline in upstream unit costs Shell was able to achieve in 2015.”

She, however, added that while the group was “not exempt from the squeeze in earnings and cash flow faced by the industry”, it was likely to “have more levers than most to pull through the downturn” with its recently acquired assets. The Anglo-Dutch major completed its proposed acquisition of BG earlier this year, even as the low oil price called into question the financial viability of the deal.

Barclays’ Rainforth noted that Shell’s work was ‘not over’, with the energy group having lost money within its consolidated upstream business for the first time on the bank’s records.

Screen Shot 2016-03-15 at 10.28.52“We see the BG transaction as critical to help speed through much needed change and should further enhance Shell’s free cash flow profile in almost any oil price environment,” she pointed out.

As of 08:42 GMT, Tuesday, 15 March, Royal Dutch Shell Plc ‘A’ share price is 1,666.50p.

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