Tuesday 07 June 2016 9:07 am

Re-shaping Shell: Oil giant to exit up to 10 countries, as BG merger gives company a chance to think about its future

Royal Dutch Shell today announced that it has earmarked 10 per cent of its oil and gas production assets for sale, which would result in the oil giant exiting between five and 10 countries.

The company has previously announced plans to ditch around $30bn (£20.7bn) worth of assets by the end of its 2018 financial year in a bid to re-jig its balance sheet following its acquisition of BG earlier this year.

"Our strategy should lead to a simpler company, with fundamentally advantaged positions, and fundamentally lower capital intensity," said chief executive Ben van Beurden, ahead of the company's Capital Markets Day. "Today, we are setting out a transformation of Shell."

Shell also announced that it would aim to keep its capital investment between $25bn and $30bn per year until 2020, with the company currently pushing for expenditure at the lower end of the range because of persistently low oil prices.

The oil major's £35bn takeover of BG has caused its balance sheet gearing position to shift from 14 per cent at the end of 2015, to 26 per cent at the end of the first quarter of 2016. A shift towards a higher gearing generally means a company is more vulnerable to knocks because it has less of a financial cushion to see it through bad times.

"The BG deal is an opportunity to accelerate the re-shaping of Shell," remarked van Beurden. "Integration is gathering pace, and today we expect to deliver more synergies, and at a faster rate."

The company also revealed that it had been given the green light for a new Pennsylvania chemicals development, and that it saw its new energies division as a potential area for growth and profitability for the foreseeable future.

Van Beurden said:

I see important opportunities for Shell from the substantial and lasting changes underway in the energy sector.

We expect to see robust demand for oil and gas for decades to come, in a global energy system in a long-term transition to lower carbon fuels. As well as low oil prices today, we are seeing higher levels of price volatility, due to geopolitical change, the speed of information flows, and the pace of innovation in our sector.

By capping our capital spending in the period to 2020, investing in compelling projects, driving down costs and selling non-core positions, we can reshape Shell into a more focussed and more resilient company, with better returns and growing free cash flow per share.

At time of writing, the company's class A shares were trading up 2.5 per cent at 1,743p.