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Shell’s Brilliant Strategy: Ignoring the Environment and Riding the Oil Wave

By June, Sawan had a change of heart, and that pledge to cut oil production by 2030? Gone, like yesterday’s news.

Posted by John Donovan 30 Sept 2023

In the thrilling world of oil and gas, where environmental concerns are nothing but a pesky fly to be swatted away, Shell’s CEO, Wael Sawan, is emerging as a true visionary. While the world was distracted by lockdowns and declining industrial activity in March 2020, Shell made a bold move that left us all in awe—well, not really.

You see, in 2021, Shell made a groundbreaking announcement: they would cut their oil production by a whopping 1-2% per year until 2030 and generously toss a few investments into renewables. Naturally, some of us sceptics thought this idea was about as half-baked as a frozen pizza.

But, oh boy, were we wrong! Who could have guessed that the oil market, which is about as cyclical as a rollercoaster, would bounce back from the depths of despair? Shell’s share price, which briefly dipped to a measly 900p in 2020, has now soared to the astronomical heights of over 2,600p. Thank you, Russia’s invasion of Ukraine and global energy security fears, for this unexpected windfall. Who cares about ethics when there are profits to be made, right?

And now, enter our hero, Wael Sawan, Shell’s relatively new CEO. In January, Sawan showered investors with pearls of wisdom, declaring that intelligent thinking about energy transition requires careful investments in renewables. But don’t worry, folks, he’s not about to let go of the company’s primary offerings—oil and natural gas. Who needs a sustainable future when you can have fossil fuels?

By June, Sawan had a change of heart, and that pledge to cut oil production by 2030? Gone, like yesterday’s news. He even boosted the dividend by a generous 15%, because why not? And the share buyback program? It’s now a cool “at least” $5 billion, up from a measly $4 billion in recent quarters. Who needs to worry about sustainable practices when you can buy back your own shares, right?

Oh, and remember that European home retail power business Shell once touted as a key energy transition vehicle? Well, that’s been dumped too. Who needs to support clean energy initiatives when you can stick to good ol’ hydrocarbons?

But it gets better. Market imbalances caused by Russia and Saudi Arabia’s production cuts and underinvestment in hydrocarbon projects during the Covid years are creating a supply deficit that could last a decade. This could lead to a short-lived oil price spike past $100 per barrel. And guess what? That’s music to Shell’s ears because it means their oil and gas return on investment will remain strong. Who cares about the environment when you can make a quick buck, right?

Of course, there are a few minor caveats. Shell seems to be focusing on generating free cash flow instead of financing its operations through debt. It’s a responsible strategy, but it might slow down growth a tad. And there’s that irritating issue of stranded oil and gas assets, but who’s counting?

Sure, the dividend payout is still about 30% lower than pre-COVID levels, but who needs dividends when you can focus on performance, discipline, and simplification, right?

After all, who cares about a sustainable future when there are profits to be made today? Shell, we salute your unwavering commitment to the past!

RELATED: Will Shell CEO’s robust messaging fuel gains at FTSE 100 energy giant? appeared first on The Motley Fool UK.

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