New York based hedge fund, Third Point Management, has called out oil and gas companies for their strategies on “going green.” Brooke Masters reports on Third Point’s criticisms in the Financial Times, writing:
Shell, TotalEnergies and BP have all been touting more or less aggressive versions of this strategy for a while. Similar lines have also started to appear at ExxonMobil and Chevron amid pressure from climate activists.
Now Third Point is calling them out. Last week, the activist hedge fund run by Dan Loeb took aim at Shell, arguing that it should break itself up into a legacy oil and chemicals business and a green arm focused firmly on the future.
Legacy Shell would drill the oil it already has while handing most of its free cash back to investors. Future Shell wouldn’t be entirely green: it would use the existing natural gasfields to fund investment in renewables and its service stations.
“You can’t be all things to all people,” is how Third Point puts it. It argues that future Shell would attract growth-oriented investors who value environmental, social and governance factors, while legacy Shell would be optimised for those who value steady streams of cash. The climate would gain because total new investment in fossil fuel would fall.
It is easy to see the attraction of Third Point’s argument. Lumbering oil companies are not ideal hotbeds of green innovation and they have been linked to decades of climate misinformation. They are also clearly more comfortable with drilling than renewables: Shell’s 2021 capital expenditure strategy called for putting $2bn-$3bn into renewables and $12bn in oil and gas.
Royal Bank of Canada analysts estimate that Shell’s parts could be worth $250bn, well above its current market capitalisation of $178bn. And five months after Anglo American tried a similar trick by spinning out its South African thermal coal assets, shares in the new company have doubled.
No wonder opinions are split. Just last week ABP, the huge Dutch pension fund, said it was dumping €15bn in fossil fuel holdings, including Shell, because it no longer saw the point of working with such companies on decarbonisation. But Blackstone’s Steve Schwarzman warned that failure to invest in oil and gas would lead to social unrest.
Shell counters that there are significant synergies among its various businesses and that keeping them together allows it to help its 30m daily retail customers and 1m corporate customers decarbonise. “These are complete, new value chains that need to be created,” Jessica Uhl, Shell’s chief financial officer, said last week. “We can leverage the assets . . . and the people that we have, and the understanding of the energy system.”
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