Shell’s Shares in A Sombre Mood After A Social Media Post Row

Summary

• Shell had posted a climate poll on a social media platform and suffered backlash from netizens 

• The Group aims to reshuffle its Refining portfolio and would like to transition to six high-value energy and chemicals parks
• The energy business is a capital-intensive one, and transition to green energy alternatives requires a lot of capital infusion

The oil businesses are making conscious efforts to adhere to the clean energy changes within the expected timelines. In order to meet the cleaner energy needs of its customers in the coming decades, FTSE 100 listed oil major Royal Dutch Shell Plc (LON: RDSA) has decided to reshape its portfolio of assets and products. The stocks of the company were down by 0.43 per cent at GBX 1,022.60 at 12:47 PM GMT+1 on 4 November.

Royal Dutch Shell recently faced backlash as one of its posts debating climate change gained the attention of netizens. The oil company posted a climate poll on Twitter on reducing carbon emissions. In reply to this poll, many users, scientists and campaigners pointed out Shell's own contributions to climate change with its use of fossil fuels and the tweet went viral.

The Royal Dutch Shell has committed to becoming a net-zero emissions energy business by 2050 or sooner. The company has stated that it would be emphasising on commercialising hydrogen and biofuels; thereby empowering customers to achieve net-zero emissions and develop integrated power resources to grow its business. The group aims to reshuffle its refining portfolio and would like to shift to six high-value energy and chemicals parks, integrated with chemicals from the current fourteen sites. Developing more performance chemicals and recycled feedstocks could help in driving overall growth for the company.

Also read: BP's New CEO Targets to Make The Company Carbon Neutral By 2020

Efforts for decarbonisation

The company aims to decarbonise its key markets and sectors by extending the supply of liquefied natural gas (LNG) in these sectors. The company focuses on value over volume by simplifying upstream and generating more than 80 per cent of cash flow from (Upstream) operations.

Royal Dutch Shell might even consider restructuring or major corporate overhaul to keep pace with the global transition to clean energy, as it plans to get rid of 10 per cent of its workforce, which would translate to around 9,000 jobs, all due to the coronavirus pandemic.

The Anglo-Dutch oil company expects to save up to £1.95 billion a year from the corporate overhaul before the end of 2022 by laying off around 7,000-9,000 employees. These cost savings could help in battling the economic fallout of the coronavirus pandemic and also fuel the low carbon energy projects for the oil giant.

The energy business is a capital-intensive business, and transition to green energy alternatives requires a lot of capital infusion. Royal Dutch Shell deemed its upstream business, which is dedicated to exploration and extraction of crude oil, critical for funding the clean energy projects. The conventional projects would ensure a strong cash flow generation for the company. In addition, the company aims to expand its reach in terms of its LNG (liquified natural gas) business and would continue to shrink its refinery capacity.

Also read: Shell Stock Soars on its Commitment To Achieve Zero Carbon Footprints By 2050

Financial Performance

The FTSE 100 listed petrochemical and energy company has delivered improved financial performance during the Q3 of the financial year 2020. Notably, Shell’s net profit surged from US $2,200 million in FY2015 to US$16,432 million in FY2019; with a CAGR of 65.32 per cent.

During the Q3, the company’s revenue was up quarter on quarter, while it remained below Q3 FY2019 figures. The company witnessed an improvement in its profitability margins quarter-on-quarter, while they were still down in comparison to Q3 FY2019 figures. Shell has also reinstated its dividend and offered investors pay-out of 16.65 cents despite modest earnings in the third quarter.

Covid-19 economic fallout

The economic fallout caused by the pandemic has ripped through the world’s largest economies. With the number of coronavirus infections rising continuously, the UK has recently announced a second national lockdown. The coronavirus pandemic has silently killed the oil demand as travel bans, and lockdown affected the consumption.

The oil industry found itself in deep trouble as the demand of oil went down, forcing the oil prices southwards. The imbalance between the oil producers and buyers had driven the price of oil downwards during the peak of the unprecedented crisis.

The pandemic induced lockdowns had forced the governments to rethink sustainable development as they believe that by caring about nature and environment, future pandemics could be averted to some extent. Environmental activists and government are also forcing the oil businesses to make a transition towards less carbon emissions in the coming decades.

The transition towards cleaner energy has gained pace even though economies have gradually started to emerge from the economic fallout of the coronavirus pandemic. The sharp decline in crude prices might trigger a revolution in renewable energy development. Royal Dutch Shell briefed its investors about reducing the production of oil in comparison with the last year and intends to adopt clean energy alternatives for sustainable development.

The OPEC (Organisation of Petroleum Exporting Countries), which accounts for almost a third of global production and has 80 per cent of the world’s proven oil reserves, has announced the biggest production cut in history earlier this year and would like to continue the trend in 2021.

A second lockdown in the UK in the backdrop of presidential elections in the US can cause more uncertainties in the trading environment. The prices of oil are set to remain volatile, which can impact the trading performance of the company in the near term and can impede plans of oil majors to make a transition to a greener energy future.