Shell CEO defends strategy against breakup-minded activist investor

Reposted from WorldOil.com

LONDON (Bloomberg) –Royal Dutch Shell Plc mounted a robust defense against activist investor Dan Loeb’s bid to split the company, and pension funds that are dumping its shares, saying the company’s integration of oil, gas and renewables is key to delivering the energy transition.

The energy giant’s CEO is fighting to keep his strategy alive after suffering a two major blows in a matter of days.

On Wednesday, Loeb’s Third Point Capital LLC said it had amassed a sizable stake in Shell and would push to break up the company to deliver greater value to investors. A day earlier, the European Union’s biggest pension fund, ABP of the Netherlands, said it would divest 15 billion euros ($17.4 billion) worth of fossil-fuel assets by early 2023, including its holding in Shell.

“Replacing long-term thoughtful investors for, say, hedge funds” is not necessarily a good thing for the energy transition, Chief Executive Officer Ben van Beurden said on call with reporters on Thursday. Shell has a coherent strategy “that is very hard to replicate if you split up into a number of different companies.”

The setbacks illustrate investors’ doubts about the wisdom of his plan to continue pumping oil and gas for decades to come while investing the proceeds in renewables and hydrogen. Losing ABP, which voted in favor of Shell’s energy-transition strategy earlier this year, was a particular surprise because “we were not told in advance, we heard it in the news,” Van Beurden said.

Shell and its European peers have barely started the decades-long process of decarbonizing their business, but are already running into trouble. Achieving their goals of net-zero emissions by 2050 will require tens of billions of dollars of investments in renewable energy and less proven technologies like hydrogen or carbon capture and storage. The companies argue that they are better placed to achieve this than anyone else.

“Without companies like us” with the skills, scope and scale to transform the global energy system, the switch to low-carbon fuels “will be a whole lot more difficult,” Van Beurden said.

Dumped or Broken Up

Some investors don’t seem to be accepting that argument. Third Point has taken a $750 million stake in Shell, according to a person familiar with the matter, equivalent to about 0.4% of the company. The firm said in a letter to investors that the company should break off its liquefied natural gas, renewables and marketing businesses into a standalone entity. That would separate it from Shell’s more carbon-intensive legacy energy business, which would include upstream, refining and chemicals.

“Pursuing a bold strategy like this would likely lead to an acceleration of CO2 reduction as well as significantly increased returns for shareholders, a win for all stakeholders,” according to the letter.

Shell has had “some very preliminary discussions with Third Point over the last year,” said Chief Finanical Officer Jessica Uhl. Those talks weren’t very specific and there isn’t much more to say until the company has had a chance to engage further, she said.

ABP’s retreat and Loeb’s new stake in Shell makes the company’s multi-decade climate strategy all the more difficult to implement. “Shell has lost an important pillar of support,” said Rens van Tilburg, a director at Utrecht University’s Sustainable Finance Lab.

Van Beurden said it’s disappointing to see long-term investors “run away,” from Shell, but described ABP’s move as a symbolic gesture, not a sign that Shell is on the wrong track, he said.

“I don’t think our strategy is failing, I think symbolic action is gaining,” he said.

The proposal to split up Shell is unlikely to “have favor in Shell’s boardroom,” said AJ Bell Investment Director Russ Mould. The company has time and time again said that its legacy oil and gas business will fund its clean energy investments business.

In stark contrast to Loeb’s suggestion that Shell should cut investments and return the cash to shareholders, Uhl said the company still aims to boost its capital expenditure to between $23 billion and $27 billion next year.