Oil giant shares fall on market debut
Oil giant Royal Dutch Shell saw its shares fall on their stock market debut today as enthusiasm for its historic unification quickly wore off.
Traders reported heavy selling from institutional investors and hedge funds after the market adjusted to the merger of Royal Dutch Petroleum, which has its headquarters in the Hague, and London-based Shell Transport & Transport.
Shell “A” shares, which originate from the Dutch side of the business, declined by as much as 5% but staged a mini-recovery to stand 63p lower at 1761.5p by mid-afternoon.
Shell “B” shares, which originate from its former UK parent, opened higher but later declined by 2% to 1802p as the session wore on.
The difference between the value of the “A” and “B” shares is explained by the fact that Dutch authorities impose a 25% tax on dividends.
The unification of the Anglo-Dutch group marks the biggest overhaul in its 100-year history and is designed to eliminate failings that led to its reserves crisis last year.
The plan to unify behind a single chief executive and board was sanctioned by the High Court yesterday and became effective this morning following registration of the court order by the UK Registrar of Companies.
Richard Griffiths, of broker Williams de Broe, said the fall in the price of Shell shares today probably reflected technical issues and many investors were waiting on the sidelines for the dust to settle.
But the completion of the merger would put the spotlight back on the strength of Shell’s business, which Mr Griffiths said compares poorly with major rival BP and explained why only a third of City brokers were recommending buying its shares.
Shell replaced just 19% of its reserves in 2004 and the oil giant revealed last week that its flagship Sakhalin II gas project in Russia was likely to cost 20 billion US dollars (£11.52bn) – twice its original budget.
Mr Griffiths said: “What happened with Sakhalin II last week brought back into focus some of the issues facing Shell.
“A lot of people will think, ‘how can you have an escalation of costs of 100% on such a big project?’. It was 10 billion US dollars higher (than budget) and Shell was quite dismissive of the reasons for it.”
Alwin Phillips, of spread betting firm Financial Spreads, said the high price of Royal Dutch Shell shares could explain why volumes among private investors were thin and only institutions and hedge funds were prepared to enter the trading ring.
He said: “We think it’s going to take a good two to three days before any confidence builds among private investors. Before the shares were at £4-£5 and were easily traded with not much risk.”
Shell announced in October that it wanted to merge its UK and Dutch parent companies amid investor anger over a string of downgrades of its reserves last year.
The crisis claimed the scalps of three senior executives and Shell was hit with fines totalling £82.7 million from regulators in the UK and United States.
Many shareholders blamed its historic structure of two sets of directors meeting separately in the UK and the Netherlands for contributing to the fiasco.
Shell, which made profits of £9.3 billion last year, said unifying its twin boards would increase transparency and accountability.
Meanwhile, the old Royal Dutch Petroleum stock is continuing to trade on the stock exchange in Amsterdam after the company failed to gain acceptances from shareholders holding 95% of the shares, which it needed to squeeze out the minority and delist.
It launched a new tender offer today and shareholders will have until August 9 to agree to sell.
