RDSA Royal Dutch Shell A

By Timothy Puko 

Big Oil can still generate big cash at Royal Dutch Shell PLC.

That is Chief Executive Ben van Beurden's sales pitch as he meets with investors and analysts in London and New York this week. The Anglo-Dutch oil giant says it can be both a cash cow and a company trying to meet the challenge of climate change.

Shell is slowly transforming into a cleaner business centered on selling electricity. But in the years to come, it aims to pay billions of dollars back to investors -- at least $125 billion in dividends and share buybacks between 2021 and 2025 alone -- all of it from traditional parts of the oil business.

All those payouts will come from returns on investments the company has already made, said Mr. van Beurden said in an interview with The Wall Street Journal. Oil and gas production, retail gasoline, lubricants, trading and chemicals will be the company's biggest source of cash.

Mr. van Beurden is trying to lure investors back to Big Oil at a time when, he said, investors are "really waking up" to the problem of climate change. Shell expects it will be decades before it can even halve the carbon emissions from its businesses that help warm the planet. Any decline in the oil business is at least a decade away, Mr. van Beurden said. And it will take just as long before investments in a cleaner electricity business produce a return.

"For decades and decades to come, the industry will have to invest in [oil and gas] in order to basically supply demand, which will be there," Mr. van Beurden said. "And as long as we feel we can have competitive positions, as long as we feel we can do that in an environmentally competitive way, a low-carbon way, etc., sure we will want to participate."

It is a challenging time in the oil business. As the effects from climate change grow, they have brought new scrutiny from regulators around the world and some politicians in the U.S. aiming to cut carbon emissions or even more directly shrink the oil-and-gas industry.

Shell has been at the vanguard of large oil companies, especially European-based majors, that have vowed to change to cut emissions. But that change often involves transforming the business entirely or relying on technologies yet to exist. Many investors have begun to wonder whether the oil industry might simply die, while environmentalists have criticized even the most progressive oil companies for failing to evolve fast enough.

Mr. van Beurden said some of that criticism is misleading. He defended Shell's investment in zero-carbon energy as wide-ranging. The company has purchased a utility, an electric-car charging business and a stake in a solar-power company, he said. Still, those electricity businesses will take several years before they can become an equal part of Shell's portfolio along with oil, gas and chemicals.

"We better prove that first before we start putting billions and billions and billions of dollars in it....It needs to be a gentle takeoff process," he said. "When we prove out that this business model that we have -- which is a business model of a future green utility -- actually works, yes, then we are going to step seriously on the accelerator."

Investors have shown little excitement for the pitch. Shell's shares are up slightly more than 1% this week, trailing broader market gains. They are also down about 20% over five years and largely flat for the past 18 months.

Investors have a dour view of oil more broadly, Mr. van Beurden said in a subsequent interview Wednesday on CNBC. Low oil prices troubled many companies in recent years, and now investors have near-term concerns about global economic growth along with long-term fears about crude demand. That is why Shell keeps escalating the shareholder payouts from its traditional oil business, Mr. van Beurden said.

"The sector at this time is still a little bit in the doghouse," he said in the CNBC interview. "At some point in time fundamentals are going to reassert themselves and people are going to say 'Hey, if I get that type of yield on my investment, I better be part of the growth story that will bring.'"

Write to Timothy Puko at tim.puko@wsj.com

(END) Dow Jones Newswires

June 05, 2019 17:07 ET (21:07 GMT)

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