Shell (LSE:SHEL) will report 2021 results this week as a company transformed over the past year. Surging energy prices and a series of divestitures have left the company flush with cash.
2020 saw Shell’s first dividend cut since World War II but shareholder pay-outs have been on the rise for the past year. The company no longer has a presence in the largest US oilfield, the Permian, as it divested its assets to ConocoPhillips for nearly US$10 billion. The company also began trading with a single line of shares on Monday, having assimilated its A and B shares last weekend as it seeks to simplify its two tier structure.
The de-emphasis on the downstream business continued with several refineries being sold as well. However, the most significant streamlining of the oil major’s business came when it dropped “Royal Dutch” from its name, leaving behind its headquarters in the Netherlands, where a court ordered the company to slash emissions by 2030.
“The dilemma facing Shell is similar to its peers: how to manage the energy transition when the world’s energy needs are growing today.,” observed Allegra Dawes, a senior analysts with Third Bridge. “Third Bridge experts see the merits in splitting the company to meet targeted greenhouse gas emissions goals. However, the cost of investing in renewable energy may be prohibitive as a company that is independent of the legacy oil & gas business.”
Dawes said that shareholder activism has emerged as a key theme in the major integrated oil space, and Shell finds itself front-and-centre in the debate. In several aspects renewable energy has disappointed over the past year, but at the same time demand for fossil fuels has increased, driving energy prices higher as the world recovers from the pandemic.
Shell on much firmer financial footing
The timing over which the energy transition occurs is still uncertain. Shell closes the books on 2021 on much firmer financial footing than where it was a year ago, but the company still has critical investment and capital allocation decisions in front of the leadership team.Shell is looking like a solidly healthy stock among the oil majors, and its shares have performed well over the last quarter, supporting The Armchair Trader’s thesis that the sector is going to do well this year with oil prices looking buoyant.
Shell said that the assimilation of its shares has not altered the total number of shares that are held by investors or its American Depositary Shares.
China hydrogen plant signals shift to clean energy
Like other oil majors the company faces a major challenge to stay competitive as a shift occurs from global reliance on fossil fuels to greener power sources. It said last week that its 20 MW hydrogen electrolyser in China, considered to be one of the biggest in the world, is now online and in a position to provide energy for fuel cell vehicles being used in the Winter Olympics.
The facility is a joint venture between Shell and the Zhangjiakou City Transport Construction Investment Holding Group.