BP and Shell identify as environmentalists, but what does it mean for investors?

Plc () and ( have in the early weeks of 2021 added detail to strategies that seek to cut emissions and pour investment into alternative energy and fuel businesses.

BP recently pledged to cut its hydrocarbons business by around 40% over the next ten years and kicked off a US$5bn a year renewables investment programme.

Today, Shell told investors that is oil business is past its peak for production and it will manage a decline of around 1-2% per year.

At the same time, it is committing to investments in renewable energy, electric vehicle charging networks, hydrogen fuels for industry, and a reconfiguration of its refining and chemicals businesses with a new emphasis on processing waste materials.

Hydrocarbon business continues with a focus of “value over volume” and, notably, the messaging around decline is specifically about oil, whereas gas is still very much a part of Shell’s plans – in the medium term at least.

Shell says its ‘customer-first’ strategy is demand-led. Chief executive Ben van Beurden noted that the company “must give customers the products and services they want and need” which now means those that have the lowest environmental impact.

“Whether our customers are motorists, households or businesses, we will use our global scale and trusted brand to grow in markets where demand for cleaner products and services is strongest, delivering more predictable cash flows and generating higher returns,” the Shell boss said.

Shell meanwhile aims to keep shareholders onside with a progressive dividend policy and share buybacks to return 20-30% of cash flow each year.

If shareholders are sold on Shell’s strategy, environmental groups are not.

Mel Evans, head of Greenpeace UK’s oil campaign, said: “Shell’s grotesque ‘customer first’ strategy seeks to blame customers first for climate change.

“Meanwhile Shell, the powerful oil major, brazenly says it will dodge oil production cuts and will simply let output dwindle. Without commitments to reduce absolute emissions by making actual oil production cuts, this new strategy can’t succeed nor can it be taken seriously.”

Shell and BP shareholders

The respective ‘net-zero’ strategies should tick an increasingly important box for the Shell and BP as ESG has become a hot topic, especially among institutional investors and consumer facing pension funds.

In 2020, asset managers like put greater importance on ESG (environmental, social and governance) issues.

, the world’s largest asset manager, specifically decided to screen its active investments against a series of sustainability measures.

Aside from public relations, social conscience and climate emergency there are also solid business motivations for diversification.

Together the two majors produce around 5mln units of a product that has seen a trading swing everywhere between US$30 and US$61 per unit in the last year.

These are businesses that could benefit from more stable and predictable income, for example the utility like business streams like generating renewable energy and selling electricity to EVs via an expanded charging network.

What it means for other producers

There will likely be opportunities for acquisitive independent producers.

BP has already seen a decade of asset divestments and similarly Shell has notably also exited certain geographies by the deal table.

The North Sea and Nigeria are perhaps decent examples of trends that may emerge as the oil majors move reserves and production from their businesses. In both places a number of small producers and solvent small cap oil and gas firms have been able pick-up assets that quickly delivered meaningful volumes and cash flows.

Timing is perhaps key here, as increasingly companies on the lower rungs of the oil and gas industry are favouring production over exploration. It may prove to be a buyer’s market…