Cannibalism
Pfäffikon SZ, Switzerland – A complete transition in energy is long in coming. Shell CEO, Ben van Beurden, says that fossil energy in many cases can not be replaced. The demand for fossil fuels will increase only. The key question is whether the major oil companies allow the market to solve their problems or that they prepare for a new future. Cannibalism is lurking.
Fiscal
The flight of electric driving will not have escaped your attention. The Dutch tax authorities supported the electrical myth which later was determined by the Dutch State Secretary of Finance, Eric Wiebes, as the Dutch IRS’s dumbest decision ever. The myth surrounding electric mobility has also gone too far on the stock market. The fact remains, however, that there is a need to change something in the field of renewable energy.
Debt
Meanwhile, oil prices fell to pitiful levels last year. The establishment of the oil price is a remarkable process. Many countries use it as a pressure medium, and large oil companies play an odd game regarding strategy. They point continuously to the coming energy transition but do not act accordingly. This may have to do with the guilt factor which many oil companies lug around today. The time of ‘never sell Shell’ already lies behind us for some time.
The debt-to-equity ratio at Shell writes about 28%, which is near the red line of 30% set by Shell itself. Therefore, the financial scope of this giant is relatively limited. Add to that the negative cash flow of approximately $ 13 billion in the first two months of this year, and you understand that the former cornerstone of every Dutch equity portfolio needs to put out all the stops to keep investors satisfied with lent dividend. Shell is not the only one facing this situation. Virtually all oil majors show a similar picture. Only Exxon showed a minimal positive cash flow but lost its AAA rating that was persisted continuously since 1930, which is a significant fact.
The argument of Van Beurden is kind to the stage but makes no sense. The technique where the oil industry is based on is over 100 years old. The scandals at carmaker Volkswagen confirm that the lead by technology in this area is on its last legs. Meanwhile, cannibalism celebrates rampant in the oil sector; also at Shell. There is no guarantee that oil majors will be the winners of the ruling renewable energy battle. The dinosaur eventually did not survive and seem illustrative of the situation in which large oil companies find themselves.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above mentioned shares and has no intention of doing so in the next 72 hours.
