Going out with a bang not a whimper

“As it is my last opportunity, th­­­e team were slightly concerned that I would do this off script. But sorry – I am going to stick to the script, because we are, of course, on record,” Shell’s outgoing chief financial officer (CFO) Simon Henry told journalists at the beginning of his presentation of the company’s financial results today.

But even sticking to the script, he used this last opportunity after “31 quarters as CFO” to have a dig at those who have doubted Shell’s approach to weathering the lower oil price environment over the last two years.

In early 2015, BP chief executive Bob Dudley was among the first to start talking about oil prices likely staying lower for longer and, as a result, the need to sharply reduce costs. Ben van Beurden, his peer from Shell, sounded more optimistic at the time, but admitted half a year later that “the tone has changed” from the more measured message that Shell conveyed earlier that year.

And then, in April 2015, Shell announced a deal to acquire UK firm BG for about $70bn. But by the time the transaction closed in February 2016, the amount had gone down to $54bn, thanks to the structure of the deal. It eliminated some fears that Shell was overpaying for BG.

“Ben was criticised quite significantly two years ago for ‘not getting it’. The oil price has fallen, all the competitors are banging their chest and saying what they are going to do,” Henry said today. “Ben just said ‘we are going to do the right thing and we are going to do it in the right way and we will do whatever the market needs’. Other companies were saying certain things, we took a lot of criticism. Ben took a lot clearly – ‘just does not get it’. We will see: the next couple of days will indicate who really ‘got it’, who acted most effectively.”

Henry’s comments are likely to be a reference to the other two European major oil and gas companies, BP and Total, which will report their latest financial results next week.

Shell today revealed a fall in its profit in the last three months of 2016, compared with a year earlier, amid impairment charges and changes in deferred tax positions. But its cash flow from operations increased year on year thanks to higher oil prices, robust output growth and lower operating costs. The firm also managed to start reducing the huge debt pile it accumulated from buying BG.

“The BG acquisition accelerates our growth strategy in deep water and LNG. We said precisely this in April 2015 when we made the announcement: it will enhance our free cash flow and it creates a platform from which we will reshape Shell. So, the deal was always about value creation for shareholders,” Henry said.

He added that if Shell said back then that the former BG’s Australian and Brazilian assets would deliver such strong growth as Shell has shown today, “you would have realised why we did the deal when we did it, and why we were resilient and robust against some of the comments about the timing of the deal”.

“We would not have got this company at the same price with that kind of performance [assumed] in the price. Delivering the value did require swift and effective integration. Done. Nine months. Largest ever acquisition in Europe,” Henry said.

Next week will indeed show which of the European oil and gas giants has managed the oil price downturn in the best way. BP will report its financial results on 7 February and Total two days later.

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