Today I am explaining why I believe Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) could deliver spectacular shareholder returns despite current oil price turmoil.
Here are two numbers that I think help make the case.
600 million
Royal Dutch Shell’s aggressive asset-shedding programme shows no signs of letting up, a positive move for near-term earnings growth. The business has elected to sell off what it deems non-core assets in a bid to shore up the balance sheet and slash capital expenditure across the group.
And given the uncertainty swirling around oil prices as new capacity hits the market — Brent crude dropped to its lowest since 2010 around $77 per barrel earlier this month — the scheme is also critical in de-risking the company whilst maximising returns from its suite of smaller, more profitable assets.
So far the oil colossus has raised $11.6bn so far in project sales, and generated another $600m this week with the sale of its 30% stake in its Oil Mining Lease 24 joint venture in Nigeria. Not only does the move help boost the capital pile still further, but this latest sale also reduces Shell’s exposure to a territory fraught with operational headaches due to widescale oil theft in the country.
2.75
In a positive move for the world’s natural resource markets, commodities-glutton China today elected to slash its benchmark one-year deposit rate by 25 basis points to just 2.75%. This is the first time the People’s Bank of China has taken the hatchet to rates since 2012.
The move does not come as a great surprise, with GDP growth in the Asian powerhouse clocking in at just 7.3% during July-September, the smallest rate of expansion for five years. And HSBC manufacturing PMI data released just this week showed activity fall to 50 in November, bang on the watermark which separates expansion from contraction and the worst result since May.
According to the US Energy Information Agency, China is the second largest consumer of oil and last year accounted for a third of global demand growth for the fossil fuel. So Beijing’s latest steps are likely to provide a much-needed boon for the worsening supply/demand balance.