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Shell argues against activist investor’s call to split

Ben van Beurden said that the needs of Shell’s customers, and the company’s efforts to pivot away from fossil fuels, were better served by keeping its range of assets and businesses. In particular, he said the company’s legacy oil-and-gas assets were needed to fund its investments in lower-carbon energy.

On Wednesday, New York-based hedge fund Third Point said it had taken a stake in Shell and suggested it should split into different companies—for instance, separating its legacy oil business from its liquefied-natural gas and renewable energy operations—to retain and attract investors.

The activist’s demands bring to the fore a debate within the energy industry as to how the world’s largest oil-and-gas companies should play the transition to lower-carbon energy. Major oil companies are coming under growing pressure from investors, environmental groups and governments to accelerate their shift out of fossil fuels and increase investments in cleaner energy.

At the same time, some shareholders have questioned how oil companies will transition profitably in areas where they don’t have a competitive edge, and think they should stick to fossil fuels and focus on returns to investors.

Earlier this year, Exxon Mobil Corp. came under pressure from activist shareholder Engine No. 1 to do more to transition to lower-carbon fuels. Now Shell, which has moved faster than Exxon to remake its business and reduce emissions, is being criticized by Third Point for trying and failing to meet competing demands from shareholders.

On Thursday, Mr. van Beurden said he disagreed with the notion that splitting up Shell would aid the energy transition or the company.

“We are able to do things with the collections of assets, business models [and] customer-facing businesses that we have that is very hard to replicate if you were just [to] split up in a number of other companies,” he told reporters.

“A very significant part of this energy transition that we are talking about is going to be funded by the legacy business,” he added.

The company said it had held discussions with Third Point several times over the past year and would continue to listen to its feedback as it does with all of its shareholders.

Aside from investors, Shell is facing growing pressure from environmental groups and others to decarbonize. In May, a Dutch court ruled that Shell must curb its operational emissions by 45% by 2030 compared with 2019 levels, while making best efforts to also achieve this on its products.

While Shell is appealing the Dutch ruling, on Thursday it pledged to halve its carbon-dioxide emissions from its operations by the end of the decade compared with 2016 levels. The new pledge didn’t include emissions linked to the use of its products.

Earlier this year, Shell said it would gradually reduce its oil output and expand in electricity and biofuels, while reducing the carbon intensity of the energy products it sells by 20% by 2030 and 100% by 2050.

However, that strategy has drawn a lukewarm reception from investors, partly because the uncertainties around the energy transition make it difficult to predict future profits.

Analysts have said shareholders could be receptive to Third Point’s ideas, as by creating different companies, each could attract separate sets of investors with conflicting ideas for the company’s strategic direction. However, they also note that there are benefits from having a large, diversified company.

There are diverging views among companies on how to approach the energy transition. Exxon and Chevron Corp. have stuck with oil and gas for the most part, while others including BP PLC, TotalEnergies SE and Shell have ramped up spending on low-carbon energy. Other smaller European companies, including Italy’s Eni SpA and Spain’s Repsol SA, are already considering splitting out their lower-carbon operations to offer investors more focus.

Shell’s comments Thursday came as the company reported a third-quarter loss on a net current-cost-of-supplies basis—a figure similar to the net income that U.S. oil companies report—of $988 million, down from a profit of $177 million in the same period last year, as higher energy prices were outweighed by one-off charges.

They also came ahead of a congressional hearing in Washington on Thursday, at which executives from top oil companies, including Shell, are set to be questioned about whether they knew about the role of fossil fuels in global warming.

 

This story has been published from a wire agency feed without modifications to the text

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