WILLS & CO STOCKBROKERS LTD: ANALYSTS REPORT ON SHELL TRANSPORT & TRADING: “Shell admitted back in January that it had overstated its oil & gas reserves by 20%, leading to the ousting of 3 senior executives, including Chairman Sir Philip Watts, and to $150m in fines from U.S. and U.K. regulators. The company's bloated board structure, with 16 non-executives between Royal Dutch and Shell, has to be addressed and an update following a review of its corporate governance is due in November.”: “We feel that a turn around in the company's fortunes may not begin to show through until 2006”: “Our recommendation is to sell your holding, and switch to BP - which has much stronger growth potential -or something more exciting.": "SELL” (ShellNews.net)
Posted 27 Oct 04
WILLS&CO REPORT: SECTOR: OIL & GAS: 22 OCTOBER 2004
Shell Transport & Trading owns 40% of the Royal Dutch/Shell Group of companies. Shell has operations in approximately 135 countries around the world, involved in chemicals, power generation and renewable resources apart from the main oil & gas businesses.
Shell's recent (22nd September) strategy update was rather thin on the ground in terms of details of oil discoveries or as far as which geographic areas it is looking to expand into. However, the company is intending a spend of $10bn on exploration and production as part of a raised total capital expenditure of $15bn for this year and next. This will certainly crimp share buy backs - which are part of the plans of other majors. Shell plans $10-$12bn of asset sales in the period leading up to 2006 to raise cash and will seek to make more focused acquisitions going forward.
As we all know Shell admitted back in January that it had overstated its oil & gas reserves by 20%, leading to the ousting of 3 senior executives, including Chairman Sir
Philip Watts, and to $150m in fines from U.S. and U.K. regulators. The company's bloated board structure, with 16 non-executives between Royal Dutch and Shell, has to be addressed and an update following a review of its corporate governance is due in November.
The share price of Shell is practically unchanged on the year-to-date, rather lagging its main U.K. rival BP - which has seen its shares rally nearly 20% in the same period. Shell has a better yield but that is partly because of this underperformance and although respectable at 3.8%, is only expected to increase in-line with inflation, at least for the foreseeable future.
More recent news has not been any more upbeat either with the company being accused (along with 13 others) by the European Commission of anticompetitive behaviour in the Dutch market for bitumen - which is used in the surfacing of roads.
The group's production is expected to fall next year -the only major oil company that will see a decline.
We feel that a turn around in the company's fortunes may not begin to show through until 2006 - by which time the price of crude may well have retreated from the recent record highs, balancing out any growth benefits. In the meantime, smaller oil groups such as Cairn Energy (CNE) are making the discoveries and winning a lot more investor's attention.
Our recommendation is to sell your holding, and switch to BP - which has much stronger growth potential -or something more exciting.
lan Murrell - Head Dealer
I, lan Murrell, hereby certify that the views expressed in this analyst's report reflect my personal views about the subject securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or view expressed in this analyst's report.
Market Cap: £40bn
P/'E ratio; 11.31 (est.)
Book value: 1.77 NMS: 200,000
Next announcement: 28/10/04 (FY)
52 week high: 435.5
52 week low: 346.25
Chart support: 404
Chart resistance: 435
Average daily volume: 45m
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