Shell: New Strategic Direction Sets New Challenges For The Company
BMI View: In line with the industry trend of lower capex amidst an environment of higher costs and softer prices, Shell has announced a re-alignment of its strategy towards tighter capital allocation and control to improve its profit margins and earnings. With a portfolio of mega-projects due for delivery in the coming years we believe that Shell will be on a strong footing in the industry, especially if it lets go of assets that have been absorbing capital with uncertain or low returns. We see the divestment from European downstream as a good step in this process, but highlighting that the situation in Nigeria will most likely deteriorate an continue dragging down earnings in the coming months, while growing LNG exposure is the main risk we see for Shell in the long term.
2014 is going to be a transformative year for Shell according to the statements and plans presented by the new management team. The aim is to 'sharpen the focus' of the company so that it is no longer the laggard amongst its peers.
Though the US shale gas assets have been the weakest link in Shell's performance (yet again) in 2013, natural gas prices bottomed out in 2012 and our forecasts suggest that Henry Hub prices will be on an upward trend for the rest of the decade. This is creating an upside for Shell in a segment which we forecast will be entrenched in the future fuel mix of the US.
|Shell - Laggard Of Its Class|
|O&G and S&P 500 Equities, 1 January 2013 = 100|