Activist hedge funds attempt to split oil giant Shell

Royal Dutch Shell

There’s been a lot of drama going on right now in one of the biggest oil companies in the world. Royal Dutch Shell (NYSE: RDS.A) has been popping up on news headlines throughout this week, as the company faces a big potential vote in the near future. Activist hedge funds are trying to get the oil giant to split apart into two separate businesses, a move that the activists argue will be good for business.

The hedge fund in question, Third Point LLC, which is headed by veteran investor Daniel Loeb, owns over $500 million in Shell stock at this moment. Using his position, he’s urging other shareholders to vote to split Shell’s legacy oil business from its newer, green-based initiatives.

Energy companies all around the world are moving towards more greener alternatives. Some of the largest companies, including Shell, have even pledged to be carbon neutral by 2050 or sooner.

However, the problem is that many investors think these green investments are a bad decision. Solar, wind, and other renewable forms of energy have been notoriously difficult to turn into profitable businesses. Suppose oil prices stay around $80 or more in the long-term, that represents a massive profit margin for these companies. In comparison, renewable margins are extremely slight, if not non-existent.

The hope is that decades from now, these technologies will improve. However, a lot of investors think that these business decisions are questionable. That’s why splitting Shell seems like a good idea for activist hedge funds like Third Point. Those that are interested in green businesses can invest in that corporate entity, while those that prefer traditional oil and gas can stick to that entity.

At first sight I don’t think splitting Shell will help in the fight against the climate crisis because we think it’s better to generate as much cash as possible from existing businesses and invest this in renewable energy,” commented Mark van Baal, head of a group that represents over 7,000 oil company shareholders. As for the pro-split side, it remains to be seen whether it can attract enough support to force a shareholder vote.

Shares of Shell were down around 2.4% on the news. Since the year began, like most oil companies, Shell has done incredibly well, jumping over 40.8%. The general consensus on energy stocks remains very bullish right now, especially as we approach the winter months.


Royal Dutch Shell Company Profile

Royal Dutch Shell is an integrated oil and gas company that explores for, produces, and refines oil around the world. In 2018, it produced 1.9 million barrels of liquids and 11.2 billion cubic feet of natural gas per day. At year-end 2018, reserves stood at 11.4 billion barrels of oil equivalent (including 1.3 billion for equity companies), 37% of which consisted of liquids. Its production and reserves are in Europe, Asia, Oceania, Africa, and North and South America. The company operates refineries with capacity of 2.9 mmbd located in the Americas, Asia, Africa, and Europe and sells 18 mtpa of chemicals. Its largest chemical plants, often integrated with its local refineries, are in Central Europe, China, Singapore, and North America. – Warrior Trading News