Shell CEO Stresses Importance of Close U.K. Ties to EU After Brexit
June 30 2016 - 8:10AM
Dow Jones News
LONDON—Royal Dutch Shell PLC's chief executive called on
European governments to keep a steady hand on the economy in the
uncertain aftermath of the U.K's referendum to leave the European
Union.
Ben van Beurden, who was among many big-business leaders who
called for the U.K. to stay in the EU, said he was now concerned
about a period of uncertainty facing Great Britain and the rest of
Europe. He said Shell remained committed to its investments in the
U.K., but other businesses have said they would delay decisions
until the terms of Britain's divorce from the EU become clear.
"Of course the general business climate is also important to
companies like ours," he said in a speech at a London conference.
"I hope that the future relationship between the U.K. and the rest
of Europe will continue to provide conditions for economic growth,"
he said.
Mr. van Beurden's comments underscored the unease among business
leaders created by the British vote to exit the EU, known as
Brexit, even among companies seen as immediate beneficiaries. So
far, Shell and other large energy companies such as BP PLC have
experienced a rise in their share price even as the outcome of the
vote last week plunged markets into turmoil, sending the pound and
stocks plummeting. Oil companies make most of their money in U.S.
dollars and so benefited from the weakening in the pound.
"Markets don't like uncertainty, and at times like this maybe
we're seen as a safer bet," Mr. Van Beurden said on the sidelines
of the conference.
In his speech, Mr. van Beurden emphasized the benefits of
unfettered trade with the EU's single market and the ability of EU
citizens to freely move and work throughout the bloc.
EU leaders said they would give Britain time to form a new
government in the wake of Prime Minister David Cameron's pledge to
resign. Some British leaders have said they want to maintain a
close trading relationship with Europe that includes free movement
of people, though others saw the vote driven by a desire to tightly
control immigration.
The oil industry has also benefited from rising oil prices,
which were over $50 a barrel on Thursday, nearly double the lows
reached this winter. Longer term, Mr. van Beurden said he expected
that oil demand will begin to outpace supply, putting upward
pressure on prices that have suffered a glut-induced slump for the
last two years.
If Brexit results in a weaker British pound over the long term,
some oil companies with operations in the U.K. North Sea, such as
Premier Oil PLC, Enquest PLC and Ithaca Energy could have lower
costs on salaries and local contracts, said Stephane Foucaud,
managing director of institutional research at First Energy.
For instance, Premier Oil PLC could see a gross cost saving of
$100 million on the North Sea Catcher development that it operates,
Mr. Foucaud estimated—a significant amount for a company with a
market value of $500 million.
However, Brexit's toxic effect so far on financial markets could
affect small oil companies' ability to raise money through stock
offerings and bonds.
Tullow Oil PLC, which plans to refinance part of its debt pile
with longer-term debt such as bonds, will likely have to wait until
markets calm, said Chief Executive Aidan Heavey.
"You're probably into the end of the third quarter, fourth
quarter before you will see stabilization and maybe the bond market
will open again," he said.
Oil companies in the North Sea are also concerned about the
prospect of Scotland, which voted to remain in the EU, breaking off
from the U.K. That scenario would raise questions about which
government would be on the hook for the billions of dollars in
liabilities as the region's mature fields are wound down. A lack of
clarity over these costs in the past has slowed down mergers and
acquisitions in the region.
Longer-term, Britain's exit from the European Union could prompt
fund managers that have a mandate to invest in the EU to sell down
shares in U.K. companies, but there is no sign of that yet, Mr.
Foucaud added.
Write to Sarah Kent at sarah.kent@wsj.com and Selina Williams at
selina.williams@wsj.com
(END) Dow Jones Newswires
June 30, 2016 08:55 ET (12:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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