Oil giant Shell sets steeper climate targets as Q3 profit misses

Gasoline prices at a Royal Dutch Shell Plc gas station in San Francisco, California, United States, on Wednesday, July 7, 2021.

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Oil giant Royal Dutch Shell on Thursday reported weaker-than-expected third-quarter earnings and announced that it had set itself a larger carbon cut target.

The Anglo-Dutch company reported adjusted earnings of $4.1 billion for the three months to the end of September. This is compared to $955 million for the same period in the previous year and $5.5 billion for the second quarter of 2021.

Analysts expected third-quarter adjusted earnings to come in at nearly $6 billion, according to Refinitiv.

Shell issued a note to investors earlier this month warning that Hurricane Ida in the Gulf of Mexico would likely have a total negative impact of about $400 million on adjusted earnings.

The company said Thursday that lower contributions from trading and improvement compared to the second quarter also weighed on its third-quarter results. This was only partially offset by the global energy supply crisis that has driven up oil and gas prices.

“This quarter, we 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,” Ben van Beurden, Shell CEO, said in a statement.

Shell said it plans to halve the absolute emissions from its operations and the electricity they use – sometimes referred to as Scope 1 and 2 emissions – by the end of the decade, compared to 2016 levels.

It has pledged to become a carbon neutral company by 2050.

In a landmark ruling earlier this year, a Dutch court ordered Shell to take tougher measures to curb carbon emissions. It ruled in May that the major energy company is responsible for its own carbon emissions and those of its suppliers, known as Scope 3 emissions, and must cut its emissions by 45% by 2030.

Members of environmental group MilieuDefensie celebrate the ruling in the case of the Dutch environmental organization v Royal Dutch Shell Plc, outside the Court of the Palace of Justice in The Hague, Netherlands, on Wednesday, May 26, 2021.

Peter Boyer | Bloomberg | Getty Images

The ruling is believed to be the first time in history that a company has been legally required to align its policies with the 2015 Paris Agreement.

Shell is appealing the ruling, a move that has been highly criticized by climate activists.

Shell shares were down 1.5% during morning trading in London. The oil and gas company has seen its stock price rise nearly 41% year-to-date, having collapsed nearly 45% in 2020.

The dividend declared to Shell shareholders for the quarter was 24 cents per share, unchanged from the previous quarter.

Net debt came in at $57.5 billion, down from $67 billion at the end of the second quarter. Shell said this was primarily driven by free cash flow generation.

COP26 in focus

Shell’s findings come shortly before COP26, the climate summit widely regarded as one of the world’s most important diplomatic meetings in history.

The United Kingdom will host the UN-brokered talks in Glasgow, Scotland, from 31 October to 12 November.

Politicians and business leaders are under tremendous pressure to meet the demands of the climate crisis by fulfilling the promises made as part of the Paris Agreement.

The world’s leading climatologists have repeatedly warned humanity of the need to take drastic and urgent measures to limit future warming to a survivable amount. The best weapon against rising global temperatures is to cut greenhouse gas emissions – quickly.

The burning of fossil fuels, such as coal, oil and gas, is the main driver of the climate emergency.

The rebound in oil and gas earnings so far this year has coincided with efforts to reassure investors that they have gained more stable ground after a grueling year with nearly every measure in 2020.

However, analysts warned that while energy companies are likely to try to demand a clean health bill, investors may have a “tremendous degree” of skepticism about fossil fuel companies’ business models over the long term.

Norway’s energy major Equinor on Wednesday reported its strongest quarterly financial results in nine years, buoyed by a massive rise in natural gas prices.

UK-based BP is due to report its third-quarter earnings early next week.

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