Shell shows it prioritizes investor returns over renewables deals
Through Laura Hurst to 09/21/2021
LONDON (Bloomberg) – Royal Dutch Shell Plc proves it takes a different approach to energy transition.
As the company’s European peers invest billions in offshore wind farms and solar projects, Shell has chosen to return its latest influx of cash to shareholders.
Investors still have reservations about the fossil fuel industry’s plans to switch from historically high-yielding oil and gas projects to potentially less profitable low-carbon energy. Shell’s promise that three-quarters of the proceeds from the sale of $ 9 billion of its Permian shale business will be returned to shareholders “should alleviate fears that any additional extra cash may be invested in renewables,” said Redburn analyst Stuart Joyner in a note.
Shell and its closest rival BP Plc have similar plans to reduce their greenhouse gas emissions. Neither have been rewarded by investors, with shares of both companies still down around 30% since announcing their strategies.
While BP has explicitly said it will partially finance the expansion of its low-carbon business by selling certain oil and gas assets, Shell has taken a more cautious approach. Instead of spending billions of dollars to acquire big projects, it is focusing on organic growth – building electric vehicle charging stations, carbon capture and storage, manufacturing alternative fuels in new and existing facilities. Last week he approved a plan to build a biofuel facility on the site of a large oil refinery in the Netherlands.
It is questionable whether this gradual expansion can keep pace with the contraction of its fossil fuel business. This year, Shell has made concessions in Tunisia, sold its Egyptian onshore assets and is in talks to divest its large portfolio of onshore oil fields in Nigeria. The company operated 54 refineries in 2004, but soon there will be only five major energy and chemical sites left.
“Some argue that downsizing and returning capital is the right strategy in a world of energy transition,” Citigroup Inc. analysts said in a note. But there is no indication that the sale of Shell’s assets in the Permian generated additional value for shareholders, they said.