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The Times: Shell and BASF set to sell $6bn plastics business

The Times: Shell and BASF set to sell $6bn plastics business

“first strategic move for the Anglo-Dutch oil company since becoming mired in its oil reserves scandal in January.”

By Carl Mortished, International Business Editor

July 30, 2004

SHELL and BASF, the German chemical company, are preparing to sell Basell, a $6 billion (£3.3 billion) global plastics business, marking the first strategic move for the Anglo-Dutch oil company since becoming mired in its oil reserves scandal in January.

Shell’s plan to cut its exposure to the chemicals sector emerged as the oil company announced second-quarter profits of $3.8 billion — a 16 per cent increase on 2003. The figures include a strong improvement in its refining and chemicals profits, but a weak result from the upstream oil production business, which suffered a 3 per cent fall in profits despite the exceptionally high oil price.

Shell’s output of oil and gas fell 5 per cent, compared with the second quarter of last year, and Malcolm Brinded, the exploration director, gave warning that output would be under pressure again next year.

Mr Brinded also said Shell would fall well short of filling its tank with oil reserves this year, by replacing between 60 per cent and 80 per cent of the 3.8 million barrels per day anticipated for 2004.

“We are off to a slow start but I am confident that we can reach 100 per cent reserve replacement over a five-year period,” he said.

Mr Brinded said that Shell’s exploration effort had been insufficiently focused, although the company was now trying to target some of its $1.4 billion exploration budget on “15 to 20 big cats”.

Shell’s chemical profits soared in recovering industrial demand for plastics — rising sixfold to $371 million for the quarter — but the oil company and its German partner are exploiting the upturn to sell a highly cyclical business that suffers from aggressive competition from lower-cost producers in the Middle East and Far East.

J. J. Traynor, of Deutsche Bank, estimated that the price of the business would be between $3 billion and $4 billion, with the money shared equally between the partners.

Jeroen van der Veer, Shell’s chairman, said the partners would consider the options and either seek a trade buyer or spin off the unit in a public stock offering. With almost $6 billion in sales, operating profits of $300 million and operations in 20 countries, Basell is a plastics juggernaut. It is a global leader in polypropylene and Europe’s leader in polyethylene.

The strong oil products recovery pleased investors, who are used to less glowing reports from Shell’s US refining businesses. Mr Van der Veer said better margins and a reduction in downtime at US refineries lifted the unit’s profits from $975 million to $1.56 billion in the quarter.

Shell is paying an interim dividend of 6¼p per share, up 2.5 per cent.

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