Shell Share Discussion Threads

[sogoesit] 23/1/2016 21:16

More analysis from Chronic Investor (or poor analysis for zzzzz not to read):

"In less than a week Royal Dutch Shell (RDSA) and BG group (BG) shareholders will vote on their controversial merger and despite the plummeting oil price fund houses and insurers including Kames, Rathbone, and several individual managers from Henderson and AXA are poised to give it the green light.

A raft of fund houses have revealed their hand and come out in favour of the deal, defying critics who argue that the fall in the oil price has made it unworkable for Shell. Kames is understood to be backing the deal with its Shell and BG shares and is understood to be encouraging all its fund managers to vote in line with the house view – contrary to some fund houses which allow the managers of listed trusts to back their clients in company votes rather than toeing the party line.

Rathbone chief investment officer Julian Chillingworth said the fund house would be voting for the deal on behalf of both Shell and BG despite the recent oil price slide. He said: “Our house view is that on balance this deal is good for Shell in the medium term and that it should go ahead,” adding “these assets do not come around too often”.

He said: “Obviously when the deal was first couched the oil price was considerably higher and I think in the short term there have been some question marks around the price Shell is paying. But the company is getting a selection of assets, particularly in the LNG area, which will in the medium term be very positive.”

Richard Marwood, manager of AXA Distribution, Ethical Distribution and Defensive Distribution funds also said he would be backing the deal as both a BG and Shell shareholder. “I think it makes sense for the two businesses to be together,” he said. “A lot of the conversations people have been having are around the way the price has moved since the deal and the terms have undoubtedly moved in favour of BG owners because of the consideration of cash involved. But is that enough to make it worth derailing the transaction? No I don’t think so.”

Job Curtis, fund manager of IC Top 100 fund City of London Investment Trust and Laura Foll, deputy manager of IC top 100 fund Lowland Investment Company and manager of Henderson UK Equity Income and Growth Fund are also sympathetic to the deal.

Mr Curtis said: “We will be voting in favour. I think this is the right thing for Shell to be doing. Rather than drilling in the arctic it’s time to be drilling on Wall Street or the London Stock Exchange and they are buying quality assets which they’ve been coveting for a while.”

Ms Foll agreed. She said: “I can’t speak for other funds but would imagine Henderson would be voting yes to the deal. Within our funds we will be voting for the deal. If we were going to vote against we would need to have had the dialogue with the company before now. Voting against at this stage would just be counterproductive.

“With perfect hindsight Shell would have waited until later on in the year but at the time people did praise Shell for being contrarian because the price had already fallen back. Traditionally we would praise companies for buying assets which are cheap and at least there was a share component to the deal, so it did adjust itself downwards slightly,” she added.

“This is a sensible tie-up but you do have to be patient. It might not look clever on a one to two year view but Shell are buying with a strong view that the oil price will recover and the strategy here is also very complimentary in terms of assets,” she said, adding; “On a five to ten year view Shell might come out well out of this. Ok they didn’t buy right at the bottom but they didn’t buy when oil was over $100 a barrel either.”

Those views are all in stark contrast to vocal shareholder Standard Life, who slammed the deal as unworkable on 8 January in light of the nosedive in the oil price since the deal was launched last year. In a statement issued on 8th January, David Cumming, Head of Equities at Standard Life Investments said: “We have concluded that the proposed terms of the acquisition of BG are value destructive for Shell shareholders. This view is based on the downside risks to Shell’s oil price assumptions plus the tax and operational risks surrounding BG’s Brazilian asset base. Consequently we shall vote against the deal.”

A large chunk of the vote will come from passive funds, which own a major stake in both companies. Both Blackrock, which owns 8.3 per cent of Shell’s A shares and Vanguard, which owns 3.6 per cent, refused to indicate which way they were swinging – though both confirmed they would be taking part in the vote despite popular perception that passive fund managers abstain.

A Blackrock spokesperson says the house will not comment on which way it is voting but is keen to stress that Blackrock always makes use of its shareholder vote. “We do vote for all holdings whether active or passive funds and take our fiduciary holdings very seriously,” he says. “In fact we think it is even more important to vote for our passive holdings because we can’t sell the equities when we want to.”

Funds with highest exposure to Shell

UT and OEICS with highest stake in shell % in Shell
Schroder Core UK Equity (GB0032312505) 7.43
UBS UK Opportunities (GB0031613804) 7.3
UBS UK Equity Income ( GB0031615841) 7
Investec - Global Energy (GB00B049P968) 6.6
Marks & Spencer UK 100 Companies (GB0005660963) 6.58
Investment trusts with highest exposure to Shell

Trusts with highest exposure to Shell % in Shell
Aurora investment Trust (ARR) 6.1
Merchants Trust PLC (MRCH) 6.6
JP Morgan Income & Capital Trust (JPI) 5.1
Schroder Income Growth (SCF) 5.5
Funds with highest exposure to BG

UT and OEICS with highest exposure to BG Group % in BG Group
Artemis Global Energy (GB00B5640222) 6.7
Lazard UK Omega (GB00B05N2H42) 5.3
Invesco Perpetual UK Focus (GB0033030965) 5.16
Royal London UK Ethical Equity (GB00B5B49T77) 5.1
CF Holly (GB0030299381) 5.07
Investment trusts with highest exposure to BG


Trusts with highest exposure to BG % in BG
Fidelity Special Values (FSV) 3.3
Martin Currie Global Portfolio Trust (MNP) 2.3"

[zyzzyva] 23/1/2016 17:48

wait six months... unless there is a dramatic recovery in energy price imo there will be massive writedowns and a mammoth dividend cut

[wllmherk] 23/1/2016 17:31

I ve filtered you Zyzzyva, your constant drivel is annoying.

wllm

[zyzzyva] 23/1/2016 16:14

that is a very poor article. most acquisitions destroy value and this one almost certainly will.

read the FT article . it says if the price of oil rises to $90 the deal is financially brilliant, at $70 it is financially tolerable, but if it stays at $50 it is a problem.

that was 9 months ago. 9 months on, the oil price is just $32 !!!!!

April 9, 2015 6:43 pm
Oil price holds key to success of Shell takeover

[sogoesit] 23/1/2016 15:43

Chronic Investor's view from this weekend:

"Contrasting Q4 updates from BG Group (BG.) and its prospective suitor Royal Dutch Shell (RDSB) seem to reinforce the strategic rationale for the proposed merger a week ahead of the definitive shareholder vote. The Anglo-Dutch supermajor revealed that current cost of supply earnings - the standard industry metric - are expected to be in the range of $10.4bn-$10.7bn, implying a worst-case scenario fall of 54 per cent on the 2014 year-end. On the financial front, BG Group didn't fare any better. Including a post-tax disposal gain of $600m, BG expects to report full-year earnings of at least $2.3bn - well down on the previous year, but in line with guidance.

However, the group's operational performance wouldn't have gone unnoticed in the Shell board room. For years, it seemed BG could do no wrong on the execution front, but a series of events, many of which were beyond its control, culminated in a declaration of on its Egyptian assets at the beginning of 2014. Continued political instability in Egypt meant that Cairo was unable to honour agreements covering BG's share of gas from fields. At the time, Egypt accounted for 18 per cent of BG's total production, so the consequent strain on cash flows, through the build-up in receivables, made the group vulnerable to an approach from bigger industry rivals.

Fast forward to the end of 2015, and BG Group's year-on-year production is up by 16 per cent, as output grows from its giant Curtis Queensland LNG project in Australia, and its sixth floating production, storage and offloading (FPSO) vessel in Brazil's Santos Basin is now up and running - and 10 more vessels remain on track. The rapid expansion of BG Group's production capacity supports our view that the primary strategic aim of the merger was to place Shell at "the apex of the global market for liquefied natural gas (LNG)". The group could be well on its way.

IC VIEW:
It's difficult not to conclude that the principal benefits of the merger will favour Shell's shareholders. The group is sailing close to the wind, with operating cash flows struggling to meet capital requirements and the $12bn dividend that management has pledged to maintain. Shell did manage to cut $4bn in operating costs last year and expects to find another $3bn in savings in 2016. All told, around 10,000 employees and direct contractors are for the chop, as management looks to drive efficiencies and synergies linked to the proposed merger. It's worth noting that BG has exited its most capital-intensive phase, which will free up cash flows from its growing LNG output. So, while oil markets are nothing short of dire, Shell's overture to its UK rival now seems prudent in light of subsequent events."

[azalea] 23/1/2016 12:20

Before DAVEOFDEVON suggests monty should seek medical help for repeating himself in posts, he should take a look in the mirror, as he is not only guilty of the same act, he thinks he can run and hide from accepting responsibility for his own investment failings by filtering those he attacks.

[la forge] 23/1/2016 09:32

Friday January 22nd 2016

Oil prices plumbed new lows this week, dropping below $28 per barrel. But oil also closed out the week on a positive note, with huge gains on Thursday and Friday, rallying back above $30 per barrel. The price increase could be a sign that the markets think that oil has been far oversold, that trading this low has been “irrational,” as the head of Saudi Aramco put it this week.

Adding to the upsurge was growing speculation that central banks around the world will take additional action to provide some monetary stimulus amid worrying signs of faltering growth. EU central bank chief Mario Draghi provided the clearest indication yet that his institution may act as soon as March.

It’s a little premature to say a rally is on, but oil prices are going to have to rise at some point with so much production currently underwater. CMC Markets, a UK-based trader, says that $34 is the next resistance point for oil, from a technical perspective. If oil can break above $34 per barrel, then the rally could have some momentum.

At the World Economic Forum in Davos, Nigeria’s oil minister Emmanuel Kachikwu said that he expects oil to rise to $40 by the end of the year. Oil prices could get worse in the short-term, but “the second half of this year holds more promise,” he said.

In fact, energy could be a major trading opportunity for investors in 2016. Sure, many analysts see oil prices staying depressed through this year, and the most pessimistic see oil prices staying low for several years. But there is not a lot of room left on the downside, and indeed, the upside risk is much greater. Citigroup told investors that oil could be the “trade of the year.” The investment bank believes that once the markets digest the significance of Iran coming back to the oil markets, a stronger rebound could be in order.

Speaking of Iran – Iran plans on shipping crude oil to the EU as early as February, according to the WSJ. One Iranian official said that a shipment of 1 million barrels could go to a port in the Mediterranean next month, the first shipment in several years to the EU. Iran’s oil ministry says it will ramp up 500,000 barrels per day in production almost immediately, and “most of that oil will go to Europe,” an official told the WSJ.

Venezuela is probably the single worst-off oil-producing country right now, with an economy in crisis and foreign exchange rapidly running low. The state-owned PDVSA says that it was able to reduce its debt load by $2 billion in 2015. But that only slightly addressed the $46.2 billion that the company had in debt as of 2014. At the same time, the Venezuelan government has $120 billion in debt, and although it has not yet missed a bond payment, worries are rising about its ability to meet its obligations. Oil accounts for over 95 percent of Venezuela’s export earnings, so the collapse has been acutely felt in the South American OPEC nation.

Barclays economist Alejandro Arreaza concluded in a recent report that a 2016 default in Venezuela “is becoming increasingly difficult to avoid.” Based on the cost of insuring Venezuelan sovereign debt, the markets are estimating an 80 percent chance of a default within the next year. Venezuela has a $2.2 billion payment due in February, which many analysts expect it to meet. But another $1 billion is due in October, and then a $2 billion payment in November.

Despite early signs of a bottoming out, Moody’s Investors Service slashed its oil price forecast for 2016 to $33 per barrel, and also put 69 E&P companies in the U.S. under credit review for possible downgrade. Another round of credit downgrades could set off more turmoil in the E&P space, as many companies are already scrambling to find liquidity and keep the lights on. Debt and equity markets have already largely closed their doors on new finance for struggling drillers. And even after considering a modest rebound in prices, “producing companies and the drillers and service companies that support them will experience rising financial stress with much lower cash flows,” Moody’s said in a statement.

But, Moody’s also added several large oil companies to that list of possible credit downgrades, including Royal Dutch Shell (NYSE: RDS.A), Statoil (NYSE: STO), and Total (NYSE: TOT). “Even under a scenario with a modest recovery from current prices, producing companies will experience much lower cash flows. Today's review for downgrade considers that much weaker industry fundamentals have potential to warrant rating changes” for those companies, Moody’s wrote in a press release.

According to Bloomberg, The four largest banks, which include Bank of America (NYSE: BAC), JP Morgan (NYSE: JPM), Citigroup (NYSE: C), and Wells Fargo (NYSE: WFC), have set aside $2.5 billion to address losses from bad energy loans.

Schlumberger (NYSE: SLB) announced plans to cut 10,000 jobs this year, a more than 10 percent cut from its total staff of 95,000. The drilling services company said that the budgets of its customers were “exhaustedR21; in the fourth quarter and that there is a “deepening financial crisis in the E&P industry.” Schlumberger is feeling the brunt of the cutbacks, and the company admitted that it is suffering from “unscheduled and abrupt activity cancellations.”; Schlumberger reported a $1 billion loss for the fourth quarter.

Low oil prices are hitting U.S. railroads hard, according to a WSJ report. In fact, current rail activity is so low that it is at levels that are normally associated with a recession. Union Pacific (NYSE: UNP) furloughed 3,900 workers in 2015 as rail traffic slowed. Canadian Pacific Railway (NYSE: CP) plans on cutting 1,000 jobs this year. Shipments for coal and oil have plunged, especially in the fourth quarter of 2015. For Canadian Pacific, its oil shipments fell by 17 percent in the fourth quarter, and shipments for metals, minerals and consumer-products dropped by 24 percent.

The DC Circuit of the U.S. Court of Appeals shot down a request from a collection of utilities, coal miners, and pro-business groups to block the EPA’s Clean Power Plan. The plan is the cornerstone of President Obama’s efforts to address climate change, and it places limits on greenhouse gases from power plants. But the industry says it is illegal. They wanted the court to issue a stay on the rules while the case works itself through the court, but the DC Circuit denied the request on Thursday.

In our Numbers Report, we take a look at some of the most important metrics and indicators in the world of energy from the past week. A look at the high-yield bond market, coal prices, currency movements, and renewable energy. Find out more by clicking here.

Thanks for reading and we’ll see you next week.

Best Regards,

Evan Kelly

Editor, Oilprice.com

[zyzzyva] 23/1/2016 08:20

the premium as nearly disappeared now, the market is saying the deal is done. i jut think its an absolute disgrace how this deal has been sold to investors. shell has a bad record with acquisitions and this one is going to end up particularly bad.

[zyzzyva] 23/1/2016 08:17

the badtimes are here again!

[montyhedge] 23/1/2016 07:24

According to research company Markit hedge funds are short of Shell shares £2.6 billion worth. That's a massive amount.

[badtime] 22/1/2016 23:05

Verbal diarrhoea can be nasty u wanna c someone about that Zy

[zyzzyva] 22/1/2016 22:48

read the article . it says if the price of oil rises to $90 the deal is financially brilliant, at $70 it is financially tolerable, but if it stays at $50 it is a problem.

that was 9 months ago. 9 months on, the oil price is just $32 !!!!!

[zyzzyva] 22/1/2016 22:38

read the FT article at the time the bid was made. it tells you everything you need to know. according to one fund manager the oil price needs to rise to $90 for the deal to make sense. so at $32 oil, there must be massive value destruction.

April 9, 2015 6:43 pm
Oil price holds key to success of Shell takeover



Sometimes one number is all that matters. In the case of the proposed takeover of BG Group by Royal Dutch Shell, that number is the oil price. In short, the success or failure of the blockbuster energy deal hinges on Shell’s long-term oil price …

[zyzzyva] 22/1/2016 22:37

buffoon, value destruction is permanent destruction. it happens when someone pays 100 for something that is only worth 80, 50, 20, or zilch

[buffythebuffoon] 22/1/2016 20:33

Zzzzzz,

Value destructive for the next ten minutes, or the next ten years?

Buffy

[essentialinvestor] 22/1/2016 16:14

Locked in some profit, kept a few.

[imperial3] 22/1/2016 16:10

It is not over yet.It requires just over 50% of shareholders votes to defeat this deal.I am sure, this is being weighed up, in the light of current oil and gas prices.Obviously,the big investors do not want to see the value of their holdings further imperilled.

[zyzzyva] 22/1/2016 16:00

lets see what the weekend papers say. they have a perfect opportunity to get to the bottom of what is going on here.

why is the shell BOD so determined to push through what appears to be a massively value destructive deal?

why was there all this nonsense around this weeks trading updates? all the media was saying that the updates showed that shell really needs BG. the journalists clearly dont understand the difference between current cost and historical cost accounts. and a value destructive deal is value destructive full stop. in fact imo shells weaknesses make the deal even more damaging.

[badtime] 22/1/2016 15:45

Lol...day off yesterday..same old stuff today ..don't necessarily disagree with half of it ..but I got that first time ...but repeating it 50 times? Missing marbles comes to mindHappy weekend all :)

[imperial3] 22/1/2016 15:34

Zyzzya.

The large shareholders may as yet come to their senses about this deal.

[zyzzyva] 22/1/2016 15:32

read the FT, that was when the oil price was $57! even after todays small rally is it still half this

April 9, 2015 6:43 pm
Oil price holds key to success of Shell takeover

[daveofdevon] 22/1/2016 15:13

Monty

Why do you keep repeating yourself? You have repeated your opinion about the dividend twice today and over 15 times in the last 10 days.

If you can't control yourself get medical help.