BP & Shell (RDSA): Should you remain invested?

Highlights 

• UK oil giants Royal Dutch Shell PLC and BP PLC will need to cut their oil production by 44 per cent and 33 per cent by 2030, respectively.
• Carbon Tracker, in its report also named several other oil giants in addition to Shell and BP, which will need to make changes to limit global temperature rise.

Oil and gas giants Royal Dutch Shell PLC (LON: RDSA) and BP PLC (LON: BP) will need to cut their oil production by 44 per cent and 33 per cent by 2030s, respectively, in order to limit global heating to 1.5-degree Celsius, according to UK based think tank Carbon Tracker.

Both UK oil majors have pledged to become net zero carbon emitters by 2050 as part of their climate goals. The UK has the similar goal of becoming a net zero emitter of carbon by 2050 as part of its sustainability goals.

Carbon Tracker, in its report also named several other oil giants in addition to Shell and BP, which will need to make changes to limit global temperature rise.

Carbon tracker report findings

According to the report, UK’s Shell and BP were still ahead of US based energy producers in meeting their climate targets.

Energy giant ConocoPhillips will have to reduce its oil production by a whopping 69 per cent, whereas another energy major, Chevron, would need to cut production by 52 per cent.

Also, Italian oil and gas major Eni would require about a 49 per cent reduction and US oil and gas firm ExxonMobil would have to cut oil production by 33 per cent.

French multinational oil and gas firm TotalEnergies requires the lowest production cut among these global oil giants, at 30 per cent.

The report also found about US$ 18 billion of oil and gas investments approved in 2020 would not limit warming to even 1.65 degree Celsius. Moreover, about 53 per cent of Shell and 40 per cent of BP’s project portfolio would not be consistent with a 1.65-degree Celsius scenario.

This climate report comes shortly after the intergovernmental energy body, the International Energy Agency (IEA), stated that the world would have to stop investing in new oil and gas production in order to meet climate goals.

In 2015, the Paris Agreement was signed by most countries as a non-binding agreement to limit global warming to 1.5 degree Celsius from pre-industrial levels.

Let us take a look at how both of these FTSE 100 stocks responded to the news:

1. BP PLC (LON: BP)

Oil giant BP responded to the Carbon tracker climate report by clarifying that the IEA findings also stated oil and gas investments would average US$ 170 billion annually after 2030, and BP’s strategy would thus follow a focused approach in line with this shift in energy.

BP also said in a statement that their oil exploration related investments had fallen by 80 per cent from their peak and would continue to drop even more in the future.

(Image Source: Refinitiv)

BP’s shares were trading at GBX 294.05, down by 1.41 per cent on 9 Sep as of 08:38 AM GMT+1. The FTSE 100 index, on the other hand, was trading at 7,021.39, down by 1.05 per cent.

The company’s market cap stands at £59,946.72 million, and its year-to-date returns is at 15.36 per cent as of 9 September 2021.

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2. Royal Dutch Shell PLC (LON: RDSA)

Royal Dutch Shell also made a statement in response to the climate report. The oil giant stated that even the most ambitious climate transition scenarios indicated oil and gas demand for several decades, however, their strategy was focused on increasing consumer demand for low or zero carbon products.

Shell stated that their oil production might have peaked in 2019.

(Image Source: Refinitiv)

Shell’s shares were trading at GBX 1,412.60, down by 1.51 per cent on 9 September as of 08:43 AM GMT+1. The fossil fuels sectoral index was trading at 5,055.70, down by 1.35 per cent.

The company’s market cap stands at £ 58,819.98 million, and its year-to-date return is at 8.83 per cent as of 9 September 2021.

Bottom Line

Oil and gas producers have been among the worst carbon emitters across all sectors. Rising pressure from climate groups and investors was what finally caused the oil and gas industry to transition to low carbon energy services.

Shell and BP maybe be better placed than their US counterparts in addressing the climate transition, however, the two must continue to aggressively cut production and shift towards low carbon fuels in order to remain competitive in an increasingly renewable energy focused world.