Shell ‘reshaping itself’ and planning further investment in new energy

22285_bannerShell’s chief executive officer, Ben van Beurden, says the company is ‘reshaping itself’ with an emphasis on stronger returns and free cash flow in order to create “a world class investment case” that is likely to include greater focus on new energy and on renewables. Shell recently became the latest fossil fuel company to bid for a slice of the fast growing offshore wind market, following Norway’s state-owned oil company Statoil into the sector (although strictly speaking, if Shell is successful, it will be re-entering the offshore wind industry, having built the 108MW Egmond offshore wind project in 2006). A consortium of Shell, Eneco and Van Oord has confirmed it is bidding to participate in the Dutch government’s tender to build two windfarms off the Dutch coast.

In a Capital Markets presentation of 7 June 2016, Mr van Beurden said he was responding to the changing energy landscape by re-shaping Shell and set out an agenda for 2020 and beyond that included taking action to manage the down-cycle in the oil industry. The company remains heavily focused on oil and gas, but will, said Mr van Beurden, play a growing role in new energies “in order to develop commercial opportunities in the energy transition.”

Setting his remarks in the context of a volatile oil industry, Mr van Beurden said: “I see important opportunities for Shell from the substantial and lasting changes underway in the energy sector. We expect to see robust demand for oil and gas for decades to come, in a global energy system in a long-term transition to lower carbon fuels.”

Mr van Beurden said that, in the currently challenging offshore oil and gas landscape, Brazil and the Gulf of Mexico represent the best real estate in global deep water. “We are developing competitive projects here based on this advantaged acreage. Shell’s deepwater production could double, to some 900 thousand barrels of oil equivalent per day (kboed) in 2020, compared with 450 kboed in 2015.”

Looking specifically at future opportunities, Mr van Beurden said: “There businesses are expected to become significant growth priorities for Shell beyond 2020 as we establish clear pathways to profitability. In new energies, there is potential for Shell to achieve material scale and profitability. As the energy transition unfolds, we intend to establish a portfolio to build on our established strengths in low-carbon biofuels, hydrogen and smart customer solutions; as well as in solar and wind. Many of these activities complement the company’s natural gas strategy today.

“Overall,” he concluded, “Shell’s focus is on re-shaping the company. We will retain the most competitive and resilient positions, through targeted investment, and substantial asset sales. This is a value-driven, not time-driven, divestment programme; and an integral element of Shell’s portfolio improvement plan.”