Shell shares just hit a 6-year low

Shell shares are at their lowest level since June 2009.

The oil giant has ‘A’ and ‘B’ share listed in London and the ‘B’ shares, which are typically the ones held by UK investors, are down 1% today, after the company abandoned drilling offshore in Alaska.

It’s not the biggest fall but shares are down 38% over the last year.

Shell has been hit by the tanking oil price and investors are lukewarm on its $US70 billion (£47 billion) merger with oil explorer BG Group.

Michael Hewson, chief market commentator at CMC Markets, has a good summary of Shell’s woes in his Monday morning email:

When Shell announced its bid for BG Group earlier this year some eyebrows were raised at the cost of the deal, as well as the forecast estimates for oil and gas prices, that were being used to justify the $US70bn price tag.

Those numbers are likely to come under greater scrutiny the longer oil prices remain at their current lows levels, and the recent slide in the share price would appear to suggest that investors have similar concerns about Shell’s belief that we will see oil prices back at $US80 a barrel in the next few years.

In July the company announced a 35% drop in profits for the 3 months to 30th June to $US3.4bn, while at the same time announcing 6,500 job losses. At the time the company said it was planning for a “prolonged downturn” in oil prices as the company looked to cut its capital expenditure further.

This morning’s announcement that the company was abandoning its Arctic drilling campaign off the coast of Alaska appears to be the latest evidence that the company is finding it difficult to sustain long term investment expenditure without any clear evidence of a payback in the near term.

This appears to be quite an about-turn from July when the company embarked on the hugely controversial project against a backdrop of environmental concerns. It would appear that early indications of a large oilfield may have been overestimated and the company will have to take charges in the region of $US4.1bn, a sizeable sum at a time when revenues continue to get squeezed.

Hewson believes Shell’s dividend could come under threat, saying: “All the banks had healthy dividends and we know what happened to them, and the decline in the share price is making some investors rather twitchy.”

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