Shell’s divestment strategy
So far, we’ve discussed Royal Dutch Shell’s (RDS.A) strategy and three of its levers: cash engines, costs, and capital expenditure. In this part, we’ll discuss its fourth important lever: divestments.
Shell expects to divest $30 billion worth of assets in 2016–2018. The asset sale program, per the company, is more value driven than time driven. Shell’s divestment program aims to exit non-strategic positions and focus on the most competitive projects that can earn returns even at lower points in an oil price cycle.
Shell plans to divest positions in its upstream segment, which is expected to affect its production volumes by ~10%. The company also plans to exit five to ten countries and to focus only on projects that provide it competitive advantages and good returns in time-bound periods.
Shell also plans to divest some of its midstream and downstream assets. The company doesn’t expect to sell the assets at giveaway prices and plans to wait if required to get the right price.
Shell’s divestment transactions
Shell has already reached an agreement with Idemitsu Kosan for the sale of a stake in Showa Shell, a refining and marketing company in Japan, and with Malaysian Hengyuan International for a stake in Shell Refining Company. In 2016, Shell expects to divest $6 billion–$8 billion worth of assets.
Shell has also announced that it has decided to part ways with Saudi Aramco in their refining and marketing joint venture Motiva Enterprises. Motiva’s assets will be divided between Saudi Aramco, which is planning an initial public offering, and Shell. For further information, you can refer to Who Will Get What in Shell’s Motiva Breakup?
In 2013–2015, 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 ~36% exposure to integrated energy sector stocks, including ExxonMobil (XOM) and Chevron (CVX).