Shell strategy and potential new pick ?3

08:31 11-Feb-21

Xebec has also just announced an order from Fuel Cell Energy for a hydrogen purification to be used by Toyota at the Port of Long Beach, CA.  No pricing is specified, but installation is scheduled for the third quarter.

Shares have yet to see the typical hydrogen bounce so far in the pre-market.  I'm planning a week-ending follow-up to this update, noting amongst many other things, that every single GRoDT stock on my list has multiplied several times over even as rebate rates have been steadily declining.  It may not apply to Xebec specifically over the long term, but now that we've seen the Get Rich part, I think it's time to start keeping the Die Rrying possibility a little more in mind.

Shell has published its strategy for net zero emissions, establishing carbon intensity target reductions from a 2016 base line of 6-8% by 2023, 20% by 2030, 45% by 2035 and 100% by 2050.  It claims that its carbon emissions have already peaked in 2018 at 1.7 gigatonnes per year and that oil production peaked in 2019 and will continue to decline by 1-2% per year for the rest of the decade. Here are what I see as the most important points of its plan going forward:

• increase marketing by a third, to $6b annually, by 2025.  Shell highlights biofuels and its efforts in Brazil on this front, which bodes well for Xebec should it extend that initiative to the northern hemisphere.
• double electricity sales to 560 tWh/year.  See my notes on PPL below.
• almost double LNG assets to deliver upwards of 7M tonnes per year by mid-decade.  This strengthens my case for calling GLNG a value.
• reduce traditional fuel production by 55% by the end of the decade as part of the already detailed refinery footprint reduction.  Despite this it aims to increase cash from chemicals by $1-2b annually through the use of circular chemicals from recycled waste.  As part of this effort it should process 1M tonnes of plastic waste per year. I note that 275M tonnes of plastic waste is produced per year.
  
• seek access to 25M tonnes of annual CCS capacity by 2035.  Currently planned and operating projects represent 4.5M tonnes.  I've been critical of current solutions, but given the time frame, it might not be the craziest plan I've heard.  We'll have to see how the science progresses.
  

Shell also affirms that it will stick to the financials we heard a week ago, namely a progressive dividend that will target a 20-30% return policy, including buybacks, once it reduces net debt to $65b.  All this will be with near-term CapEx of $19-22b per year.  I expect buybacks to figure heavily, and also find it telling that hydrogen plans are completely lacking in detail.

Shell shares are down slightly in London, and the only change to my investing from this report is to take an interest in the upcoming PPL Corp. report on February 18th as a buy the dips opportunity.  Though demand and demographics remain a risk for the duration of the pandemic, colder weather could also help the upcoming results.  More importantly, the company is seeking to divest its electric utility business in the U.K., which generates a little over half of its operational earnings, and said in the most recent call that it expects to announce a transaction in the first half of this year.  This means the current 41.5 cent quarterly dividend will be adjusted downward, but it represents 6% yield at $27.67 which will hopefully persist until Shell or someone else buys the U.K. business.  I could see the remainder of the business benefiting from consolidation and/or the coal to solar push in Kentucky & Pennsylvania going forward. However, I won't actually add a PPL section to the website until the U.K. sale is formalized and we see how shareholders are treated.