Royal Dutch Shell plc (NYSE:RDS.A) recently announced a deal with Dansk Olieselskab ApS to offload its downstream assets in Denmark. The mentioned agreement is valued at $80 million, which is equivalent to 60.62 million pounds, and marks Royal Dutch Shell’s exit from the refining industry in Denmark. The deal is set to be completed in the following year, subject to regulatory approvals.
The offloaded assets A/S Dansk Shell is composed of Fredericia refinery, which generates approximately 70,000 barrels of petroleum products on a daily basis. The energy firm has also sold off its stake in the domestic trading and supply units in Denmark.
Regardless of the sale agreement, Royal Dutch Shell would resume supplying oil and feedstock to the Fredericia refinery. The recent agreement also covers the long-term deal with Dansk Olieselskab “for the offtake of some products from the refinery.”
The energy corporation intends to streamline its operations on the back of downbeat global commodity prices and to “concentrate its downstream operations on areas where it can be most competitive.” Royal Dutch Shell had previously offloaded its Danish marketing division during the month of May to Couche-Tard, which operates the marketing unit under the brand name of Royal Dutch Shell through a Trademark Licence Agreement (TLA).
As global oil prices have slumped from their 2014-highs of higher than $115 per barrel to under $50 per barrel today, the international energy markets have witnessed a significant decline in capital and operating spending.
The firms have delayed or cancelled several energy projects and have employed layoffs in order to enhance their profitability and cost structure.
The agreement between Royal Dutch Shell and Dansk Olieselskab will most probably not lead to a workforce reduction. The energy corporation stated in a press release that 240 employees working in the facility in Denmark would now work under Dansk Olieselskab.
After the acquisition of BG Group, Royal Dutch Shell extremely needs cash. The cash reserves of the company have deteriorated, while it experienced an increase in debt levels. The downbeat prices of crude oil have further adversely affected the situation.
During the second quarter of fiscal year 2016, the energy company posted cash and cash equivalents of $15.22 billion, lower in comparison to the $31.75 billion recorded during the last quarter of the previous year. On the other hand, the long-term debt of Royal Dutch Shell climbed from $52.85 billion in the fourth quarter of fiscal year 2015 to $79.47 billion as of June 30 this year.
In order to enhance its liquidity position , the energy giant has announced an asset divestiture program of approximately $30 billion through the year 2018. It is considering to accomplish the offloading of oil and gas assets amounting to $6 billion to $8 billion this 2016.
In Royal Dutch Shell’s 2016 Capital Markets Day, the energy firm also revealed its plans to exit about 10 countries in the following months. This sale deal is likely to bring the energy company close to its asset divestment target for this year. In early 2016, the firm had also sold off its North Sea stake.
After a slight rebound in the oil markets and the sale agreement, the stock of Royal Dutch Shell is trading in positive territory.