Shell Isn't Looking for Big Deals as Debt Shrinks, Profits Soar
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Shell Plc isn’t planning to use its growing cash pile to pursue big acquisitions, aiming instead to deliver greater value for shareholders.
That was the message delivered by new Chief Executive Officer Wael Sawan and Chief Financial Officer Sinead Gorman at a meeting with analysts on Friday morning, following their announcement the day before of record profits of nearly $40 billion in 2022 and the lowest level of indebtedness since 2015.
The company’s management is trying to boost Shell’s value, which has lagged American peers that stuck more closely to their fossil-fuel core instead of diversifying into cleaner energy.
Shell’s shrinking debt could give investors “some nervousness around the potential for large-scale M&A,” Biraj Borkhataria, an analyst at RBC Capital Markets, wrote in a note on Friday about the meeting earlier in the day. “Wael clearly stated this was not on the agenda, with focus more on performance of the asset base and driving higher returns.”
Shell said at the meeting that big acquisitions of around $10 billion are unlikely in low-carbon energy because there aren’t good opportunities, according to analysts at Barclays Plc led by Lydia Rainforth.
There could be smaller-scale investments in that area, particularly in hydrogen. Last year Shell spent $2 billion to buy Danish company Nature Energy Biogas A/S and reached final investment decision on Europe’s largest green hydrogen production site.
Berkshire purchased a chunk of Occidental Petroleum in December 2022 for $10 billion. That reflected a conscious decision to boost exposure to the conventional energy sector. Meanwhile, energy majors have been shy about increasing exposure and have instead become much more conservative. The majority of their spending has been either been in onshore domestic US production. They have also been open to high probability overseas exposure with close access to major markets like Exxon’s Brunei/Malaysia production.Click HERE to subscribe to Fuller Treacy Money Back to top