Is Royal Dutch Shell plc Getting Cold Feet in Australia?

Despite a recent decision to sell its stake in the Wheatstone LNG project, Royal Dutch Shell remains strongly committed to Australian LNG ventures.

Jan 25, 2014 at 1:10PM

Royal Dutch Shell (NYSE:RDS-A), Europe's largest oil company by market value, recently announced that it will divest its stake in a major Australian energy venture. Does the Anglo-Dutch energy giant's decision signal a broad retrenchment from its oil and gas ventures in Australia, or are there other factors at play? Let's take a closer look.

Shell backs out from Wheatstone
Earlier this week, Shell said it would sell its 8% stake in the Wheatstone-Iago Joint Venture and its 6.4% stake in the massive Wheatstone liquefied natural gas project to the Kuwait Foreign Petroleum Exploration Co. (KUFPEC) for a cash consideration of $1.135 billion.

The Wheatstone LNG project offshore western Australia slated to go into service by 2016 with a total capacity of 8.9 million tonnes per annum, or MTPA. Chevron (NYSE:CVX) serves as the project's operator, with a 64.14% interest, along with joint venture partners Apache (NYSE:APA), which maintains a 13% stake, and state-owned KUFPEC, which will have a 13.4% stake after the transaction with Shell closes.

Shell's decision to withdraw from the project mainly reflects the company's plans to improve its capital efficiency by focusing only on its highest-value opportunities, as opposed to signaling a broader retreat from Australia or from LNG projects. Indeed, Wheatstone was Shell's smallest position in Australian LNG and the company is still committed to three other major Australian projects.

Still committed to Australian LNG
Shell maintains a 24.27% interest in the North West Shelf LNG project; a 67.5% controlling stake in the Prelude Floating LNG project; and a 25% interest in the Gorgon LNG project, the largest single resource project in Australia.

Gorgon, which is under construction by operator Chevron, as well as joint venture partners ExxonMobil (NYSE:XOM) and Shell, which each hold a 25% stake in the project, is one of the most expensive projects being undertaken by Shell and is expected to increase the company's net production by more than 100,000 barrels of oil equivalent per day after entering service in mid-2015.

However, even though Shell remains committed to these and additional Australian LNG projects, it may part ways with other assets in the country.Some analysts believe the company may divest its 23.1% stake in Australia's Woodside Petroleum (ASX:WPL), which is worth more than $6  billion. It is also seeking a buyer for its 120,000 barrels-per-day Geelong refinery in Victoria, as part of a broader push to downsize its chronically underperforming refining division.

Keeping spending in check
Shell's decision to back out of these and other projects is part of an overarching strategy to keep spending within its operating cash flow. Though the company's net capital expenditures came in at $44.3 billion last year, higher than its operating cash flow of $40.4 billion, the combination of asset sales and a wave of new high-margin oil projects slated to start up over the next two years should help reverse the trend.

From 2012 to 2015, Shell expects to generate cash flow of $175 billion-$200 billion, as compared to targeted net capex spending of $130 billion. To help meet that goal, it may part ways with as much as $15 billion worth of additional assets in 2014 and 2015, having already put up for sale several of poor performing assets in Kansas' Mississippi Lime play, Texas' Eagle Ford shale, and Nigeria's eastern Niger Delta region.

The Foolish takeaway
Far from signaling a retreat from LNG, Shell's decision to sell its stake in the Wheatstone project simply reflects the realities of a company tightening its purse strings and seeking to improve capital efficiency. The company is still very much committed to LNG and expects its integrated gas portfolio to account for a larger share of its earnings and cash flow in the years ahead.

While Shell and its integrated oil peers struggle to offset declining production from mature fields, one energy company continues to mint profits. Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!


Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers