Shell CEO Stresses Importance of Close U.K. Ties to EU After Brexit

LONDON—Royal Dutch Shell PLC's chief executive called on European governments to keep a steady hand on the economy in the uncertain aftermath of the U.K's referendum to leave the European Union.

Ben van Beurden, who was among many big-business leaders who called for the U.K. to stay in the EU, said he was now concerned about a period of uncertainty facing Great Britain and the rest of Europe. He said Shell remained committed to its investments in the U.K., but other businesses have said they would delay decisions until the terms of Britain's divorce from the EU become clear.

"Of course the general business climate is also important to companies like ours," he said in a speech at a London conference. "I hope that the future relationship between the U.K. and the rest of Europe will continue to provide conditions for economic growth," he said.

Mr. van Beurden's comments underscored the unease among business leaders created by the British vote to exit the EU, known as Brexit, even among companies seen as immediate beneficiaries. So far, Shell and other large energy companies such as BP PLC have experienced a rise in their share price even as the outcome of the vote last week plunged markets into turmoil, sending the pound and stocks plummeting. Oil companies make most of their money in U.S. dollars and so benefited from the weakening in the pound.

"Markets don't like uncertainty, and at times like this maybe we're seen as a safer bet," Mr. Van Beurden said on the sidelines of the conference.

In his speech, Mr. van Beurden emphasized the benefits of unfettered trade with the EU's single market and the ability of EU citizens to freely move and work throughout the bloc.

EU leaders said they would give Britain time to form a new government in the wake of Prime Minister David Cameron's pledge to resign. Some British leaders have said they want to maintain a close trading relationship with Europe that includes free movement of people, though others saw the vote driven by a desire to tightly control immigration.

The oil industry has also benefited from rising oil prices, which were over $50 a barrel on Thursday, nearly double the lows reached this winter. Longer term, Mr. van Beurden said he expected that oil demand will begin to outpace supply, putting upward pressure on prices that have suffered a glut-induced slump for the last two years.

If Brexit results in a weaker British pound over the long term, some oil companies with operations in the U.K. North Sea, such as Premier Oil PLC, Enquest PLC and Ithaca Energy could have lower costs on salaries and local contracts, said Stephane Foucaud, managing director of institutional research at First Energy.

For instance, Premier Oil PLC could see a gross cost saving of $100 million on the North Sea Catcher development that it operates, Mr. Foucaud estimated—a significant amount for a company with a market value of $500 million.

However, Brexit's toxic effect so far on financial markets could affect small oil companies' ability to raise money through stock offerings and bonds.

Tullow Oil PLC, which plans to refinance part of its debt pile with longer-term debt such as bonds, will likely have to wait until markets calm, said Chief Executive Aidan Heavey.

"You're probably into the end of the third quarter, fourth quarter before you will see stabilization and maybe the bond market will open again," he said.

Oil companies in the North Sea are also concerned about the prospect of Scotland, which voted to remain in the EU, breaking off from the U.K. That scenario would raise questions about which government would be on the hook for the billions of dollars in liabilities as the region's mature fields are wound down. A lack of clarity over these costs in the past has slowed down mergers and acquisitions in the region.

Longer-term, Britain's exit from the European Union could prompt fund managers that have a mandate to invest in the EU to sell down shares in U.K. companies, but there is no sign of that yet, Mr. Foucaud added.

Write to Sarah Kent at [e-mail] and Selina Williams at [e-mail]

(END) Dow Jones Newswires

June 30, 2016 08:55 ET (12:55 GMT)

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