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Shell quiz: when is a stake ‘held for sale’ on sale?

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  • The Australian
  • 12:00AM August 2, 2016

BRIDGET CARTERMergers & Acquisitions Editor: Sydney

GRETCHEN FRIEMANNMergers & Acquisitions Editor: Sydney

It’s unlike the CFO of an oil major to be imprecise when it comes to accounting classifications of assets.

Unless maybe he doesn’t mind causing a bit of mischief for a joint venture partner with whom relationships have been less than rosy of late.

Shell finance director Simon Henry set the hares running last week during a second-quarter earnings call when he declared the company’s 13.3 per cent stake in Woodside Petroleum had been reclassified first as “held available for sale” and then “held as an asset for sale”.

The problem is, according to some local non-Shell accountants, this seems to cross over on two different accounting terms — “available for sale” and “held for sale”.

The difference being that “available for sale” is somewhere you house some equity investments you don’t have a lot of control over no matter what your time limits on a sale, while “held for sale” implies an intention to offload in the next year.

Shell’s local office wasn’t able to clarify yesterday, and who knows when they will be able to, given most of the bigwigs have headed off to enjoy the European summer now earnings are out of the way. And the Shell accounts are not specific.

But the explanation that the reclassification was due to losing board influence after recent sell-downs and the fact that falls in Woodside share prices hit Shell’s non-current assets, rather than current, indicates the shares are classified as “available for sale” and the sell-down is not imminent.

And with share prices down 36 per cent since Woodside shareholders scotched a board-approved buyback of Shell’s shares in July 2014, Shell will feel out of the money if it sells now.

Data Room is not saying this is a source of mischief worth putting short-term pressure on Woodside’s share price over, but Henry would have $US2.7 billion more (before tax) on his balance sheet had Woodside’s board and management better sold the buyback.

Luckily for Woodside chairman Michael Chaney (whose departure looks like happening earlier than any

Shell sell-down) and chief executive Peter Coleman, they were prevented from buying Shell’s shares and can thank their shareholders for a dodged bullet.

Almost immediately after, oil prices (and Woodside shares) tanked and the $US2.7bn that remained on the Woodside balance sheet instead of heading to Shell has come in very handy in a market that places a lot more value on balance-sheet strength.

SOURCE

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