Shell shows it favors investor returns over renewables deals

LONDON (Bloomberg) --Royal Dutch Shell Plc is proving it’s taking a different approach to the energy transition.

As the company’s European peers pour billions into offshore wind farms and solar projects, Shell chose to give its latest influx of cash back to shareholders.

Investors still have reservations over the fossil fuel industry’s plans to switch from historically high-return oil and gas projects to potentially less profitable low-carbon energy. Shell’s promise that three quarters of the proceeds from the $9 billion sale of its Permian shale business will be returned to shareholders “should alleviate fears any incremental free cash will be sunk into renewables,” Redburn analyst Stuart Joyner said in a note.

Shell and its closest rival BP Plc have similar plans for slashing their greenhouse gas emissions. Neither have been rewarded by investors, with shares for both companies still down some 30% since they announced their strategies.

While BP has explicitly said it will partly fund the expansion of its low-carbon business by selling off some oil and gas assets, Shell has taken a more cautious approach. Instead of spending billions of dollars acquiring big projects, it’s focusing on organic growth -- building electric vehicle charging stations, carbon capture and storage, making alternative fuels at new and existing facilities. Last week it signed off on plans to build a biofuel facility on the site of a large oil refinery in The Netherlands.

It’s questionable whether this gradual expansion can keep pace with the shrinking of its fossil fuel business. This year Shell has handed back concessions in Tunisia, sold its onshore Egyptian assets and is in talks to divest its large onshore oilfield portfolio in Nigeria. The company operated 54 refineries in 2004, but will soon have just five major energy and chemicals sites left.

“Some argue that shrinking and returning capital is the right strategy in a world of energy transition,” analysts at Citigroup Inc. said in a note. But there’s little indication that the sale of Shell’s Permian assets generated any extra value for shareholders, they said.