NEW YORK (TheStreet) -- I always like a good restructuring story especially where a company has good assets, a strong balance sheet and solid Free Cash Flow generation potential. Royal Dutch Shell (RDS-A) fits the bill in my view. It is one of the largest energy producers in the world that operates in 140 countries, has a total proved reserve base of over 13 BBOE (Billion Barrels of Oil Equivalent) and average production in excess of 3.4 mmboe/d (millions of barrels of oil equivalent per day).
It has exposure to just about every part of the oil/gas food chain including upstream, downstream, transportation and petrochemical segments.
Over the last several years the company has mismanaged its huge shale asset base, has had multiple cost overruns on key projects and continues to run an underperforming refinery business. Last year alone, Royal Dutch Shell's operational issues in Nigeria, Iraq, Kazakhstan, Alaska, and the U.S. cost its earnings by $5.1 billion. So it's not surprising that the stock massively underperformed its peers last year, gaining just 3.4% vs. the sector, which rose 14.1%. There is no doubt this company and the management team have a credibility problem. But that is about to change, in my view with a new CEO on board, Ben van Beurden.
Yes, he's been at the company for 30 years and is an "insider" and ideally investors wanted an outsider for a "fresher" perspective. But van Beurden is well respected and has come out of the gates with a bang. He started the first of the year and signaled that there will be change ahead with a focus on profitability, capital efficiency, returns and cash flow. The company has a number of non-core and underperforming assets that it could sell and generate $15 billion in Free Cash Flow over the next few years - which in turn will be used for buybacks and dividend increases. It already sports an attractive 4.9% dividend yield, but there is upside here and this is the preferred choice by management to increase.