Can Shell Survive Oil at $30 a Barrel?

THE VALUE INVESTOR: Even though significant restructuring actions have begun at Shell under new CEO Ben van Beurden, the recent collapse in oil prices adds considerable pressure

Stephen Simko, CFA 15 January, 2016 | 9:57AM

Even when oil prices were above $100 a barrel, Shell's portfolio was strewn with problems. Huge bets on shale destroyed huge amounts of capital, and the company's upstream resource base has few growth options with strong economics – the low-cost Brazilian oil it is acquiring from BG is the one major exception.

Investors should not expect miracles; Shell isn't Exxon or Chevron

Shell’s (RDSB) chronically poorly performing downstream also has been a consistent drag on returns on capital. Even though significant restructuring actions have begun under new CEO Ben van Beurden, the recent collapse in oil prices adds considerable pressure that we think the company will struggle mightily to overcome. After all, Shell's issues of poor execution and capital efficiency predate even ex-CEO Peter Voser, who was responsible for a lot of the poor recent strategic choices.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Royal Dutch Shell PLC B1,479.60 GBX9.41

About Author

Stephen Simko, CFA  is a senior stock analyst at Morningstar.

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