7 March 2016

Royal Dutch Shell

Shell point out the highly complementary overlap of BG Group, particularly in Liquefied Natural Gas and BG’s deep water assets in Brazil.

by James Godrich

Fund Manager

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Price
£21.11
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52 Week High-Low
£22.52–£12.62
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Net Yield
7.23%
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Hist / Pros Per
48.2–26.5
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Equity Market Cap
£165,751m

Royal Dutch Shell (Shell) is one of the largest global oil majors with revenues split, in financial reporting terms, between its Upstream, Downstream and Integrated Gas divisions.

The Upstream division, which is involved in oil exploration and production, continues to be impacted by depressed oil prices. Downstream, which has provided the majority of earnings through the oil price downturn, is involved in the refining and distribution of the Upstream products. The Integrated Gas division reports, amongst other sources, the revenue of the recent BG acquisition which, in February 2016, helped Shell to create the biggest global trader of Liquefied Natural Gas (LNG).

In strategic terms Shell divides its revenue slightly differently into Cash Engines, Growth Priorities and Future Opportunities. Through its Cash Engines, such as conventional oil and gas, the group intends to fund dividends and strengthen the balance sheet with strong free cash flow and returns.

Through Growth Priorities, such as deep water drilling, Shell intend on growing positions in markets which they hope will become Cash Engines from 2020 onwards. In Future Opportunities the group sees new energies and shale gas as a path towards future profitability with managed exposure and material upside. A seemingly sensible long term strategy.