🛢 Is Shell Being Pushed To Come Clean?

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🛢Shell: Pushed To Come Clean?

Royal Dutch Shell Plc (RDS.A) is looking to sell its holdings in the US’ largest oil field. This stake is worth ~$10B. Is this a court-enforced move towards clean energy? Or is it more a means to bring down the debt to below $65B? The answer: Maybe. (Tweet This)

The Clean Energy Imperative

Shell and its brethren have been forced to take a stand on reducing emissions and push towards renewable energy. Late last month, Exxon Mobil(XOM) was forced to make changes to its board by a tiny activist hedge fund.

A court in The Hague in The Netherlands ruled that Royal Dutch Shell must slash its carbon emissions by 45% by 2030. Through that ruling, Shell is also on the hook to reduce the emissions of its suppliers as well. In response, Shell has vowed to become a net-zero emissions energy company by 2050 while terming the verdict “disappointing.”

This is the first time that a company is legally bound to align its policies with the Paris climate accord. Under the terms of that agreement, nearly 200 countries agreed to keep the rise in global temperatures well below 2 degrees C. Shell will likely not be the last.

Shell is also battling a stretched balance sheet. The acquisition of the BG Group for $52B in 2016 pushed its debt past the $70B mark. The company’s much-bandied $40B non-core asset sale plan hasn’t really materialized in the past five years.

Past The Peak?

The Permian basin is the largest oil field in the US, producing ~4.5M barrels of oil per day – 40% of the overall national output. Shell holds 260K acres in the Permian basin and this asset accounted for 6% of the company’s oil & gas output last year.

Shell is acutely aware of the fact that its peak energy production is behind it and has been working to reduce assets that are on the decline. For instance, the company sold its stake in Deer Park Refining Ltd. for $596M in May. It also sold its Puget Sound Refinery to HolyFrontier Corp. for $350M. It’s now looking to unload its Permian Basin holding for $10B.

This is much-needed as the company looks to pare down its debt to $65B. Past its peak oil, Shell expects its output to fall by 1-2% per year through 2030. The company is simultaneously embarking on low-carbon technologies and renewables and expects to spend up to 25% of its overall budget by 2025.

So is court-enforced decision making? Or is there an altruistic motive? Or is it a debt-reduction exercise? Whatever the case, Shell’s actions seem consistent with self-preservation rather than any overarching strategy.

Market Reaction
RDS.A ended the day at $41.25, up 2.05%.

Company Snapshot 📈

RDS.A $41.25 +0.83 (2.05%)

Analyst Ratings (25 Analysts) BUY 72%  HOLD 24%  SELL 04%

Newsworthy 📰

Shift: Disney CEO says 40% of upfront ad sales went to streaming or digital (DIS +0.45%)

Joining Hands: GE, Safran venture to develop radical new jet engine (GE -1.61%)

Back To Normal: American Express CEO says US travel, dining spending is nearing full recovery (AXP -0.43%)

Later Today 🕒

  • Oracle Corp. Earnings (ORCL)
  • H&R Block Inc. Earnings (HRB)
  • Square Annual General Meeting (SQ)
  • 6:00 PM IST: Retail sales, producer price index
  • 6:45 PM IST: Industrial production data

Fun Fact of The Day 🌞

If Bill Gates were a country, he’d be the 37th richest on earth

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