Royal Dutch Shell stake in Woodside Petroleum ‘held for sale’

Screen Shot 2016-07-29 at 08.40.19

by Angela Macdonald-Smith: July 29 2016

Royal Dutch Shell looks to be heading for an exit from Woodside Petroleum sooner rather than later, after reclassifying its remaining $3 billion stake in the Australian oil and gas producer as an “asset for sale”.

The move appears to be driven by technical reasons because of Shell’s reduced representation on Woodside’s board. But at the same time it may signal a firmer intention to dispose of the circa 13 per cent stake, which Shell has for some time declared as a non-strategic holding.

“We reclassified Woodside,” chief financial officer Simon Henry told investors on the second quarter teleconference, overnight Australian time. “It has long been effectively as an asset with not a long-term strategic intent to hold.”

Shell cut its stake in Woodside in 2014 through a $3.4 billion sell-down, but plans for a selective buyback of most of Shell’s remaining stake in 2014 collapsed after being vetoed by shareholders.

The stake, worth about $3 billion at current share prices, has long been expected among the $US30 billion of divestments Shell is targeting for 2016-18, but the latest move may be seen as suggesting a sale may occur well before 2018.

Woodside shares dropped 2.3 per cent on Friday to $26.49, a level well below the $40-plus per share that Shell got in previous sell-downs in November 2010 and June 2014, both in Australian and US dollars.

Mr Henry noted that Shell’s representation on Woodside’s board has been reduced with one of the Shell-appointed directors retiring, and that the oil major does not have a right to replace the director on the board.

That means Shell’s influence on the company “has fallen below that at which we can recognise the investment as an equity associate”, Mr Henry said.

The reclassification means Shell can no longer recognise its 13 per cent share of Woodside’s production and reserves in its accounts, reducing its output by 25,000 barrels a day and reserves by about 100,000 barrels, Mr Henry said. Instead, the stake will be valued according to its market value.

“So there will be ongoing volatility until such time as we actually sell the asset, but it is, in accounting terms, regarded as an available-for-sale financial asset and mark-to-market in practice every quarter,” Mr Henry said.

Shell said it has $US6 billion to $US8 billion of divestments in progress already this year after $US11 billion of asset sales in 2015, of which $US5 billion were from the portfolio of BG Group, which Shell acquired for about $US50 billion.

Among the assets listed more immediately for sale is the New Zealand upstream business, which was placed under review for a possible sale last December. Shell already sold the Maui gas pipeline in New Zealand to funds linked to Colonial First State for $NZ335 million in a deal that completed last month.