Shell may sell a stake in the green energy business to focus its investment on oil and gas.
The FTSE-100 company has approached third parties to offload a part of its global renewable energy operations, just days after the chief executive of that company warned that cutting oil and natural gas production could increase living costs.
Shell could also establish its renewables business as a separate, independent company.
Both options will be seen to be steps towards a possible spinoff of Shell’s green energy assets, something that activist investors have been pushing for years.
Shell’s spokesperson declined to comment but cited previous statements that its future strategy would include “dilutions”, or the selling of stakes, in various renewable energy interests.
Wael Sawan is the new CEO of the company, and he took over in January. The company has reduced its commitment to green energy, focusing instead on more profitable business such as natural gas trading and production.
was criticized by some investors, including The Church of England pension fund. However, the move is intended to address concerns about the “value gap” between Shell’s more oil-and-gas-focused American competitors.
Last week, Mr Sawan said that the world “desperately” needs oil and natural gas to avoid an increase in energy prices as households struggled with the cost-of-living.
Shell is still in the early stages of discussions about renewables. It may also allow outside investors to purchase stakes in its downstream businesses, those that are involved in refining and processing oil and gas.
Shell’s spokesperson said, “We do not have any comment on the content of this story.”
Shell has made it clear that, as we stated at the Capital Markets Day event held last month, they will invest selectively in power. They will focus on markets in which their trading activities and reach with customers can deliver higher returns. Shell also plans to use green electrons for growth in low carbon energy solutions.
“We have also said that we will be dilution our power interests as part of our plan to achieve our strategic goals.
Shell will continue to support Shell’s efforts to achieve net zero energy by 2050.
Shell is looking to power as a source of growing low-carbon value.
Shell’s major restructuring of its renewables business will raise further questions regarding the company’s commitment towards green energy.
Under Mr Sawan’s leadership, the company is focusing more on fossil fuels to generate profits and has promised to increase shareholder payouts while putting the brakes on investments in renewables.
In May, the Church pensions board personally criticised Sawan for overseeing “a return to maximising short-term profits” which would make the switch from green energy “more unstable”.
Biraj Borkhataria is a senior analyst with RBC Capital Markets. He said that the majority of shareholders want the company to focus on increasing profits. He cited the fact oil and gas assets offer twice the return of renewables like solar and wind.
Shell’s current green energy businesses may be causing its stock value to fall, so a spin-off of the renewables division could boost that.
Borkhataria stated: “It is clear that the value of these [renewable] resources does not reflect in Shell’s valuation. Typically, they are penalized for it.”
“There is a chance to crystallise and realise that value gap… This frees up money that can be used elsewhere.
Shell shareholders can be fast followers in certain areas, but not first movers.
Shell’s integrated structure, which includes businesses in all stages of the energy chain, is seen as an asset.
Third Point, the Wall Street fund run by activist Daniel Loeb has been pushing for a separation of the renewables business and the liquified gas unit, arguing these are fast-growing businesses that have been held back by legacy divisions.
Borkhataria added: “It is great that shareholders are more vocal in expressing the unrealized value of their shares.” Do I believe Third Point will succeed in dividing the company up? No.”
Shell has maintained its goal to reach “net-zero” carbon emissions in 2050, even though it hasn’t yet provided any detailed plans to do so.
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