Royal Dutch Shell Plc just took a big step toward remaking itself as a natural gas company.
With Thursday’s deal to sell $7.25 billion of Canadian oil-sands assets, Shell will boost the share of cleaner-burning gas in its proven reserves from about half to 60 percent, Shell data show. It will also rid itself of some of the most polluting assets on its books.
Chief Executive Officer Ben Van Beurden said he is “in the middle of transforming” Europe’s biggest oil company not just to survive lower crude prices, but also to endure the transition to a low-carbon world. His record acquisition of BG Group Plc has given him gas deposits from Kazakhstan to Australia. On Thursday he sharpened Shell’s commitment to reducing pollution, changing executive pay policy to reward efforts to control it.
The oil-sands divestment is a big step in “transforming the company into more of a gassy play,” said Elvis Pellumbi, chief investment officer at CF Opportunity Fund, which invests in energy companies. It’s “the right thing to do in ensuring dividend sustainability and strategic transformation.”
Explorers like Shell have billions of dollars of oil and gas assets in the ground. These help them maintain steady dividend payouts, a primary reason shareholders buy oil stocks. At the same time, investors with an eye to the future want the companies to sell assets that could one day be left stranded amid falling demand for fossil fuels, which are blamed for global warming.
The world’s eight biggest producers, including Shell, Exxon Mobil Corp. and BP Plc, were indirectly responsible for as much climate-damaging pollution as the entire U.S. in 2015, according to a study by a London-based non-profit group CDP.
“We encourage Shell to sell potential stranded assets and support the company to invest these billions in exploring new sustainable business models,” said Mark Van Baal, founder of Follow This, a movement of green investors in Shell.
The oil-sands sale to Canadian Natural Resources Ltd. will take about 1.7 billion barrels of proven oil reserves off Shell’s books, according to the company. It had 6.26 billion barrels of oil and other liquids and about 6.99 billion of gas reserves at the end of last year, according to its annual report published Thursday.
Hydrogen Alternative
As well as accelerating the transition to gas, Van Beurden has also advocated a price on carbon and worked to promote hydrogen as an alternative transport fuel. The company opened the first hydrogen pump at a filling station in the U.K. last month.
Still, some see Shell’s efforts lagging behind other European explorers. Total SA has bought stakes in a wind company, a battery maker and a renewable-power retailer. Statoil ASA, which in December sold its Canadian oil-sands business for $625 million, said Thursday renewable energy and low-carbon technology will make up 15 percent to 20 percent of capital expenditure at the end of the next decade, up from about 5 percent today.
The oil-sands sale is “a step in the right direction but Shell still hasn’t reached the tipping point of actually embracing the energy transition that you can see with utilities, Statoil and Total,” said Jeremy Leggett, chairman of the Carbon Tracker Initiative. “My prediction is there will come a day in that boardroom when it will become clear to a critical mass of directors that their business model has no future in hydrocarbons, including gas.”