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Shell’s Divestment Program: $30 Billion Worth of Assets Lined Up

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Mar. 22 2016, Updated 2:34 p.m. ET

Shell’s company update

Royal Dutch Shell (RDS.A) is restructuring its business portfolio by divesting its assets. Before discussing the divestment program, let’s have a look at the series outline.

In this series, we’ll provide an update on Shell’s operations, financials, and market performance. In the next few parts, we’ll examine Shell’s Motiva breakup, its latest rise in stock price, and why the majority of analysts rate Shell as a “buy.”

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Next, we’ll evaluate its upstream and downstream project portfolios, which are being majorly re-churned. We’ll examine Shell’s leverage and cash flow position followed by its valuations and peer comparison. Finally, we’ll conduct a correlation analysis of Shell’s stock with oil and natural gas prices.

Let’s begin by looking at the company’s divestment program details.

Shell’s divestment program details

Shell expects to divest $30 billion worth of assets in 2016–2018. According to media reports, Shell has appointed financial advisory and asset management company Lazard to identify assets and potential buyers for its sales. Investment companies such as Bank of America Merrill Lynch (BAC) and Morgan Stanley (MS) are reported to have been appointed for the divestment program.

As per Shell’s fourth-quarter transcript, the company is targeting early sales in the downstream and midstream segments. In fact, Shell has already reached an agreement with Idemitsu for a stake in Showa Shell in Japan, Couche-Tard for its marketing business in Denmark, and Malaysian Hengyuan International for a stake in Shell Refining Company. In 2016, Shell expects to divest less than $10 billion worth of assets.

In 2014–2015, Shell’s divestments stood at more than $20 billion. Shell’s peer BP’s (BP) divestments stood at $10 billion by 2015’s end. The Vanguard Energy ETF (VDE) has ~40% exposure to integrated energy sector stocks, including ExxonMobil (XOM) and Chevron (CVX).

One interesting point to note here is that Shell has just concluded a $54 billion deal to acquire BG Group. Shells’ BG acquisition and its divestment program make it imperative to study the company’s leverage and cash flow strategy. We’ll discuss this later in the series. In the next part, we’ll analyze Shell’s latest move on Motiva Enterprises.

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