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Shell and BP have seen the error of their ways – but is it too late?

What TotalEnergies got right about energy transition, the UK giants got very wrong

Shell's Pearl GTL plant in Doha, Qatar. Some analysts believe a take-over proposal might get a decent hearing from shareholders Shell/Stuart Conway
Shell's Pearl GTL plant in Doha, Qatar. Some analysts believe a takeover proposal might get a decent hearing from shareholders

Two big European oil companies, Shell and BP, have got themselves into a terrible mess in recent years dithering over whether they are to remain oil companies or instead become all-encompassing “energy groups”.

Their shareholders, under the sway of the environmental, social and governance lobby, had encouraged them to make this move, but when the leadership of the two showed signs of actually delivering the goods, the investors backed away. 

Both have traded significantly below the ratings of US and other European peers who were not as adamant in their belief in energy transition as BP and Shell.

Take the contrasting fortunes of BP and TotalEnergies, the French oil champion, over the past five years. Shares in the British group show a decline of 10 percent, while Total is up nearly 40 percent.

What did the French do right, in investment terms, that the other two so conspicuously got wrong?

Patrick Pouyanné, CEO of Total for the past 10 years, has made no bones of the fact that his job is to sell oil and gas, while investing significantly in renewables and alternatives for the future.

He has made himself a darling of the industry, and of more traditionally inclined investors, with statements such as “I need to continue to be strong in oil and gas – people are buying our shares because of that”.

He has also consistently brushed off the objections of the environmental lobby – and his own domestic eco-warrior politicians – by insisting that the energy transition is no simple process, that renewables will continue to be expensive and show bad returns for a considerable time, and that the world will need hydrocarbons for many decades to come.

Of late, Shell and BP have shown some signs that they have realised the error of their past ways.

After years of rebranding as green energy producers, and spending lots of capital on renewable and other energy sources, the talk once again is of “pragmatism” and shareholder value.

“We are really, really driven by returns,” said BP CEO Murray Auchincloss at a recent earnings call.

Wael Sawan, Shell CEO, had the same message on “enhanced shareholder returns” recently.

They have each spent hundreds of millions of dollars on green projects and salaries for top-rated “green” executives.

But now it looks like that particular gravy train has hit the buffers. Capex on expensive projects in renewables is being slashed; green divisions are being downsized.

Both companies have downplayed suggestions that the appropriate response to negative shareholder perceptions in Europe is to seek primary listings on US stock exchanges, but you can see why they might still entertain the notion in the future.

Shares in ExxonMobil, which under CEO Darren Woods could never be accused of pandering to the eco-lobby, have increased 60 percent over the past five years.

Even Occidental, where CEO Vikki Hollub has earned a reputation as the thinking person’s oil company boss, is up 20 percent despite significant investment in measures to combat climate change.

Both have also recently announced big mergers in the shale sector – risking the intervention of the environmentally-woke Biden energy administration – showing a confidence that oil and gas will continue to be the mainstay of their businesses for the foreseeable future.

Has the late-in-the-day volte-face by Shell and BP come too late to redeem them in the eyes of shareholders?

There have been tentative signs of a re-rating on both stocks in recent months. But some analysts believe they are still so cheap that an opportunistic takeover proposal might get a decent hearing from shareholders.

Any such bid would be laden with regulatory and environmental challenges. But it is a sign of how badly wrong Shell and BP got their fundamental strategies that it is being suggested at all.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He acts as a consultant to the Ministry of Energy of Saudi Arabia and is a media adviser to First Abu Dhabi Bank of the UAE

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