The Royal Dutch Shell share price has been one of the best performing on the FTSE100 since the start of the year, which is not surprising considering the recent surge in natural gas and oil prices. gross so far this year.
When the company reported in July, the company increased its dividend by nearly 40%, while repurchasing $ 2 billion of its own shares.
There is no doubt that the continued improvement in oil and gas prices has helped boost Shells revenue since the start of the year, with adjusted net income reaching $ 5.53 billion in the second quarter. So this morning’s third quarter numbers are particularly disappointing, reaching $ 4.13 billion, well below expectations of $ 5.42 billion.
Considering the increase in fossil fuel prices this quarter, today’s numbers are a particularly poor result, even taking into account the disruption caused by Hurricane Ida, which cost $ 400 million. to the company.
The company also cited higher costs elsewhere as it said the fourth quarter would see a better performance due to lower maintenance costs, but that didn’t stop the stock price from falling at the start of trading.
This underperformance prompted activist shareholder Dan Loeb’s Third Point Group to seek the dissolution of the company, after taking a $ 750 million stake in the company, dividing it into traditional businesses and renewable units and marketing. His argument seems to be that Shell is trying to serve two masters and you can’t be everyone.
The problem with this argument is that the traditional companies must finance the transition to renewable energies, so there must inevitably be a crossover element, although the argument for the split has garnered some support on the sidelines.
It is not difficult to understand the frustration of shareholders given the company’s underperformance, as well as management’s concern about payments to shareholders rather than taking advantage of the recent rise in energy prices for finance investments in renewable energies, as well as to reduce its emissions.
Frankly, management needs to pull itself together and decide on a direction to take and not be distracted by what Third Point calls “competing stakeholders pushing them in too many different directions”.
Shell needs to stop bowing to external pressures and virtue signals by setting ambitious goals and focusing more on the job at hand.
In September, Shell sold its Permian Basin business to ConocoPhillips for $ 9.5 billion, promising to return $ 7 billion to shareholders and pay off its debt that fell to $ 57.5 billion.
This appears to be a skewed set of priorities, by all means, returning funds to shareholders, but the focus on shareholder returns and the lack of investment in the transition to renewables indicate a lack of seriousness when it’s about making the transition of the business.
Transitioning to renewables is not a switch you can just turn on. It needs a clear plan with the revenues generated from its LNG and petroleum businesses helping it transition to low-margin renewable energy businesses.