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Royal Dutch Shell Breakup: 3 Scenarios


  • Daniel Loeb's Third Point recently took a stake in Royal Dutch Shell and is pushing for a breakup of the company into a fossil fuel and a renewables company.
  • Valuation of Shell has been lagging during the last couple of years, but it is questionable whether a breakup would erase the value lag.
  • In this article, I will explore three different valuation scenarios of a potential breakup of Royal Dutch Shell.

Wind energy versus coal fired power plant

acilo/E+ via Getty Images

Just before the company published its Q3 results, big news about Royal Dutch Shell (RDS.A) (RDS.B) hit the presses. Third Point, headed by Daniel Loeb, announced that it purchased a stake of more than $500 million in Shell and

This article was written by

I am a private investor from the Netherlands in my mid thirties. I have a very long term view and with my own investments I focus on an awkward combination of stable, dividend-paying investments, cryptocurrency, and growth. My favorite holding period is forever, but I am looking for interesting opportunities which might or might not become a success as well. I am writing for Seeking Alpha because I like to share my insights and enjoy the interaction about investing ideas. My writing is mostly about stocks I own, and others I am interested in.I try to approach every possible investment with a great deal of common sense. Every investment has bulls and bears, and I am always searching for a balanced view, which includes aspects of both. I also try to write balanced articles which provide new insights.On the picture you can see my cat, who sadly died a couple of years ago. I like to think that my investing mimics his behavior: most of the time not doing a lot, finding the best places to lie down (enjoying solid dividend-paying investments). But sometimes for a brief period of time he can become very agile and active, just like what I should do when I notice great investing opportunities (though I'm skeptical about market timing).

Analyst’s Disclosure: I/we have a beneficial long position in the shares of DNNGY, NEE either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (20)

the new generation profile picture
this company is going to grow big in the next few montes big by when its steel cheap!
its got great grades and its season is coming winter! (Those who got it, got it)
1,100 shares to vote no on the breakup of shell.
R_Mitchell profile picture
Don't know how many more quarters like this can BVB still afford to have.. and once he's gone, the road for the break-up will be open.
Best thing Shell management could do is to apply for an internship position in Total Energies so they could learn how one adds renewables to an Oil&Gas company the profitable way
fortbrepoels profile picture
SHELL will no split for the moment whit raison , SHELL go closed GRONINGEN and have now the STREAM2 for gas in the future .
Wind and sun go change the olie industry , that take time and many money .
For the moment we have change whit the olie price and every shareholder will see a good dividend and not payé for a green dream .
The green man in the street have no RDS shares A or B
Old Professor profile picture
Maybe, it would be better just to "break off" Shell from its fickle and feckless management team, and go from there.
kamendc profile picture
For a P/E ratio to have any meaning, you need to have earnings, which stands for the E in the formula.
There is no way Shell's earnings from renewables are 50% or even 30% of the Integrated Gas segment earnings. If they had any material earnings, they would have broken out this segment separately in their reporting, at least to boast about it (not even talking about providing benefits to investors in terms of visibility, which I believe is part of their fiduciary duty).
For all we know, it may have negative earnings - how will you apply a P/E ratio then?
Otherwise I am onboard with Mr. Loeb, let Shell spin the wind, solar, charging stations and similar stuff to a separate entity - it does not have to be financed with oil&gas earnings, there are many many funds with an ESG mandate who will be happy to finance it (not saying they will necessarily earn a good return out of it, though).
@kamendc Keep seeing this ignorant argument.

You know the one that completely ignores all the very profitable renewable pure plays in the market. BEPC comes to mind.

But opening with the 'lagging value, P/E' is misleading. Because over the last 5 years XOM has lost 23% of its value, RDS only 13%. So who's underperforming?
Giesbers Investment Strategy profile picture
@kamendc, thanks for your interesting comment. I have been wondering myself as well why Shell would not list the earnings of their renewable portfolio separately. You are right that if they are negative, calculating expected market caps is meaningless and my whole article is only a pure hypothetical practice (which it probably still is because the breakup is likely not going to happen). A more practical reason for not reporting their renewable earnings separately might be that they are so interconnected in the company that it is difficult to pinpoint which is renewable and which is not (for example: using natural gas to produce hydrogen).
Giesbers Investment Strategy profile picture
@martyr1777, well, it depends on what is the subject. XOM has a higher P/E than Shell, so Shell's stock is underperforming. As a company, XOM might be underperforming since they made their E in the P/E equation comparatively lower.
TheOldHand profile picture
Transition to green is going to be slow and expensive (and filled with various investment opportunities). I believe that Hydrogen will be a major branch of "green", but -- other than "heavy moving" nitches (fuel cell busses, over the road tractors, locomotives) -- will be slower and even more expensive. Time will pass and as it does petroleum will be burned.
Giesbers Investment Strategy profile picture
@TheOldHand, Hydrogen has the large benefit (for Shell at least) that it is currently mostly produced using natural gas, which they view as an important transition fuel. (Never mind that this actually creates more emissions than when you would use the gas for heating). But in the long term, of course, Shell also wants to produce hydrogen sustainably. You are very right that this will be very slow and expensive, but hydrogen would be a true solution for vehicles that are difficult to power using only batteries, like ships and airplanes.
In looking a PE ratios in your chart, one could argue that there is a negative correlation between commitment to net zero / transition and stock performance for traditional energy companies. Suggesting to me that the market doesn't believe... yet. While a break up may give a short term value bump sufficient for fund managers to take their gains and move on, it will leave long-term investors and progress toward cleaner energy production high and dry.
@HK_Phooey "one could argue that there is a negative correlation between commitment to net zero / transition and stock performance"

No it actually doesn't because looking at the PE for the YTD ignores the fact that XOM has lost more value in the last 5-10 years then all the European majors.
Giesbers Investment Strategy profile picture
@martyr1777, XOM might have lost more value during the last decade than European majors, but it is still valued at a higher forward P/E
captaindividend profile picture
Hasn't this already been dismissed by Shell's largest shareholder as impractical.
The only way to build green is via continuing oil income. The third point proposal seems misjudged as best.
Giesbers Investment Strategy profile picture
@captaindividend, yes it has, but Loeb said he is playing the long game. I still do not think it is going to happen.
vooch profile picture
Sorry My Friend, This Dan Loeb character is simply a grifting film flam man. His plan is bogus. Already the biggest shareholders of RDS have said no to Loeb's value destroying plan.
Giesbers Investment Strategy profile picture
@vooch, thanks for your comment, I agree
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