Shell reports profit miss after activist investor calls for break-up

Royal Dutch Shell has reported lower than expected earnings for the third quarter despite surging prices for fossil fuels, a day after an activist shareholder called for its break-up.

The energy company’s latest results also strengthened its commitment to cut emissions from its operations, after a Dutch court ruled in May that it was not doing enough to reduce its carbon footprint.

Adjusted net profit from July to September fell to $4.1bn, from $5.5bn in the previous quarter, Shell said, even as cash flow from operations hit $17.5bn, the highest ever.

The lower than expected earnings reflected the “adverse impact of Hurricane Ida and lower contributions from trading and optimisation, partly offset by higher oil and gas prices”, it said.

Shell is under pressure on several fronts after it emerged on Wednesday that the activist hedge fund Third Point had built a large stake in the company and urged Shell to split into “multiple standalone companies” to deliver better value for shareholders through the energy transition.

Earlier this year, the district court in The Hague ordered Shell to cut all emissions, including those released when its products are burned by customers, by 45 per cent by 2030.

The company has said it will appeal against the ruling but on Thursday committed to reduce absolute emissions from its own operations, known as scope 1 and scope 2, by 50 per cent by 2030 compared with 2016 levels.

“Not the cleanest set of results this morning given a number of one-offs impacting earnings, however from a [cash flow] perspective, Shell reported strong results,” said Biraj Borkhataria at RBC Capital Markets. “Given the news around the activist investor yesterday, we’re not sure investors will put much weight on these new [emissions] targets.”

Shell has said it welcomed “open dialogue” with all shareholders, including Third Point, but made no reference to the activist investor’s proposals in its results statement.

It has said it plans to allow its oil production, which peaked in 2019, to decline by 1 to 2 per cent a year as it shifts spending to renewable energy and other low-carbon technologies such as hydrogen.

The company last month sold its Permian shale oil business in Texas for $9.5bn and promised to return $7bn of that to shareholders. The distribution of those funds, which comes on top of buybacks it already announced in the second quarter, will happen next year after the deal completes, Shell said on Thursday.

“This quarter we’ve generated record cash flow, maintained capital discipline and announced our intention to distribute $7 billion to our shareholders from the sale of our Permian assets,” chief executive Ben van Beurden said in a statement.

Shell had previously flagged a $400m hit in the third quarter due to Hurricane Ida, which swept through the Gulf of Mexico in late August and initially took about 95 per cent of the region’s oil production and refining offline. Shell only restored production at its Olympus offshore facility — capable of producing 100,000 barrels of oil equivalent a day — in early October after more than a month of repairs.

In total, oil and gas production in the past three months was at a similar level to the second quarter, the company said.

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