* Activist shareholder Loeb called for break-up of Shell
* Q3 adj. earnings of $4.1 bln below analysts' forecast
* New climate target is absolute, not intensity-based
(Adds comments from top shareholder, updates price, adds
graphic)
By Shadia Nasralla
LONDON, Oct 28 (Reuters) - Royal Dutch Shell hit
back on Thursday against an activist fund's call for the company
to break up, with top executives saying its businesses operate
better together than apart.
Hedge fund Third Point, which has built a large stake in
Shell, on Wednesday called for the oil major to split into
multiple companies to improve its performance.
The push was the latest broadside against global oil and gas
giants, who have faced calls from governments and
climate-conscious investors to shift to renewable energy while
still meeting current high levels of fossil fuel demand.
Shell, along with other European oil majors, has set targets
to slowly move away from oil production while investing in
non-fossil energy sources like solar and wind power.
Billionaire Daniel Loeb, who runs Third Point, said on
Wednesday that the company is being pushed in "too many
different directions," and that it should consider separating
its legacy energy production from renewables and liquefied
natural gas (LNG) businesses, a notion company officials
rejected.
"If you were to split that into component pieces, I think
that can sound really interesting from a financial perspective,"
finance chief Jessica Uhl told reporters on Thursday.
"But in terms of real solutions, I think that breaks down
and our ability to integrate and bring these different pieces of
the puzzle together will be how we uniquely make a difference in
the energy transition."
Shell Chief Executive Ben van Beurden told reporters that
Shell's strategy is coherent and well understood by a majority
of its shareholders.
Loeb did not respond to a request for comment Thursday.
Over the past two years, Shell shares have posted a total
return of negative 16%, according to Refinitiv Eikon data. Those
returns lag U.S. majors Exxon Mobil Corp and Chevron
Corp, though over a longer period, Shell and other
European companies have outperformed their U.S. counterparts,
who have focused less on emissions reduction and renewable
investments.
Shell reported third-quarter profit of $4.13 billion on
Thursday, below analyst forecasts. Shares fell 3.5% on Thursday.
Loeb, in his letter on Wednesday, said Shell would benefit
from a different structure that would let it cut costs and
invest more aggressively in decarbonization.
However, Iain Pyle, investment director at UK-based Abrdn,
one of Shell's top 10 largest shareholders according to
Refinitiv Eikon data, said while breaking the company into
faster- and slower-growing pieces has a certain "spreadsheet
logic" to it, he would probably not support Loeb's campaign.
"There are few companies out there where I would imagine the
divisions are as kind of interlocked and interwoven as they are
at Shell," Pyle said. "The upstream feeds the trading business
feeds the refinery, feeds the chemicals plant, feeds the retail
arm, and breaking it apart is quite tough."
(GRAPHIC: Shell returns over time: https://tmsnrt.rs/3EoIGwb)
Bernstein analyst Oswald Clint, who has an outperform rating
on Shell, said in a note that a minority listing of Shell's
marketing business might make financial sense, but that a full
split of the company would hamper future earnings.
"It's not by splitting that we are going to tackle the
climate challenges," said Naïm Abou-Jaoudé, chief executive of
investment manager Candriam, who said Shell's strategy of
investing in new alternative energy over time and gradually
phasing out fossil fuels, would be easier as a single company.
Shell set itself a tougher emissions-cutting targets for its
direct emissions, aiming to halve them by 2030 in absolute terms
rather than just cutting intensity-based emissions, which leaves
open the possibility of an overall increase.
Shell's direct emissions are dwarfed by the emissions caused
by the combustion of its products through its customers, known
as Scope 3.
The company has pledged to become a net-zero emissions
company by 2050, but is under pressure to make faster progress,
with a Dutch court https://www.reuters.com/business/sustainable-business/dutch-court-orders-shell-set-tougher-climate-targets-2021-05-26
ordering it in May to cut all of its emissions - including
Scope 3 - by 45% by 2030.
Shell is appealing the court ruling, with van Beurden saying
earlier this year that "a court ordering one energy company to
reduce its emissions – and the emissions of its customers – is
not the answer" to reducing global emissions.
Coal and natural gas demand has already reached new peaks,
surpassing pre-pandemic levels, with oil not far behind. Gas and
power prices surged this autumn as tight gas supplies have
collided with strong demand in economies recovering from the
COVID-19 pandemic. <LNG-AS>
Shell's cash flow from operations in the quarter rose by
around 54% on the year to $16 billion, which in turn helped it
to reduce net debt to $57.5 billion, compared with $65.7 billion
in the previous quarter.
(Reporting by Shadia Nasralla; additional reporting by Svea
Herbst Bayliss and Simon Jessop; Editing by David Gaffen, Jason
Neely, Mark Potter, Barbara Lewis, Christina Fincher and
Marguerita Choy)
