Can Royal Dutch Shell Plc Make £20 Billion Profit?

Will Royal Dutch Shell Plc (LON: RDSB) be able to drive profits higher?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

royal dutch shell

Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to push profits up to levels not seen in the last few years.

Today I’m looking at Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) to ascertain if it can make £20 billion in profit.

Have we been here before?

A great place to start assessing whether or not Shell can make £20 billion in profit is to look at the company’s historic performance. It would appear that the closest Shell has ever got to a £20 billion profit was back during 2007, just before the financial crisis when the price of oil surged to a record high of around $140 per barrel.

Unfortunately, since 2007 Shell has never been able to return to this level of profitability despite growing in size. In particular, since 2007 Shell had added more than $100 billion of assets to its balance sheet and shareholder equity has increased 52%. However, over the same period the company’s return on assets has slumped from 11%, to only 7%.

But what about the future?

Shell’s performance during the past few years has been hampered by non-performing assets. Specifically, according to the Financial Times, around one third of Shell’s assets are not producing a positive return-on-investment. The assets dragging on Shell’s balance sheet include the company’s $8 billion share in the huge Kashagan oilfield and numerous downstream assets. 

Nevertheless, Shell’s management is on the warpath and has drawn up plans to divest $15 billion worth of assets within the next few years. The idea is that these disposals will allow Shell to shed some inefficient assets, while using the cash raised to fund new projects. Some City analysts actually expect that $15 billion in divestments will not be enough, predicting that the final total will be closer to $30 billion.

Actually, this efficiency drive is already well underway. In the past few months Shell has announced that it will sell assets in the North Sea, cancelled plans to build a multi-billion dollar gas-to-liquids plant in Louisiana US and has started strategic reviews of the company’s Nigerian and shale oil businesses.  And in the past week alone, Shell has sold its stake in a Brazilian oil field worth $1 billion ad cancelled Arctic drilling plans.

All in all, this reorganisation should boost profits, although Shell’s overall performance is still dependent upon the price of oil. Still, as oil is a commodity that is running out, it is likely that its price will only move higher over time, indicating that over the long-term Shell’s profits will return to 2007 levels. 

Foolish summary

So overall, I feel that Shell can make £20 billion profit.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Rupert does not own any share mentioned within this article.

More on Investing Articles

Young woman holding up three fingers
Investing Articles

3 top FTSE 100 shares! Which one is my favourite

The FTSE 100 has had a decent 2024 so far. Muhammad Cheema takes a look at some of its top…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

High FTSE 100 yields, low prices!

Christopher Ruane explains the approach he takes when trying to find high-yield bargains in the blue-chip FTSE 100 index of…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how I’d invest £180 a month to target a passive income of £6,397

With less than a couple of hundred pounds to invest per month, could this writer build annual passive income streams…

Read more »

Investing Articles

I’d start buying shares for under £500 like this

A seasoned investor explains how he would start buying shares for the first time today if he had massive stock…

Read more »

Investing Articles

Will the BP share price ever hit £5 again?

The BP share price was last above 500p in May. After falling 26% since then, our writer considers whether it…

Read more »

Investing Articles

What on earth is going on with Barclays share price?

The Barclays share price jumped on Friday, taking it closer to its 52-week high. Dr James Fox explains what's going…

Read more »

Investing Articles

2 FTSE dividend shares I’d love to buy for passive income

So many stocks, too little cash to buy them. But our writer can't help but be charmed by these two…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

No serious savings? I’m using the Warren Buffett method to build wealth!

Christopher Ruane learns some lessons from billionaire investor Warren Buffett and explains how he applies them to his own portfolio.

Read more »