Shell deal signals renewed appetite for oil and gas – Daily Business

Wael Sawan: strengthening Shell’s resources

Shell’s decision to buy a Canadian rival is being seen as a broader shift back to fossil fuels amid escalating geopolitical tensions and rising oil prices.

The £12 billion acquisition of Arc Resources is the British company’s biggest deal for more than a decade and will shore up its oil and gas reserves.

The cash and shares deal will add 370,000 barrels of oil and gas a day to its output, in addition to expanding its reserves by about two million barrels a day.

It follows a controversial refocus on oil and gas by BP and a more pragmatic approach to fossil fuels signalled by Canadian prime minister Mark Carney.

BP today announced that profits for the first three months of the year have more than doubled to $3.2 billion compared with the same quarter last year ($1.38bn) following a surge in oil prices since the beginning of the Iran war.

The shift in sentiment comes ahead of a protest at NatWest’s AGM in Edinburgh over the banks’s decision to soften its policies on fossil fuel investments.

NatWest, parent of Royal Bank of Scotland, disclosed in February that it had loosened some of the restrictions it had imposed on financing of clients’ fossil fuel activities.

This includes lifting a ban on working with oil and gas majors that do not have climate transition plans aligned with the 2015 Paris agreement to limit global warming.

The bank said at the time that its changes were a response to the “evolving policy environment”, but investor campaign group Share Action has warned that “this kind of backtracking has real consequences”.

Rick Haythornthwaite will chair the NatWest AGM in Edinburgh

Investors are being urged to vote against the re-election of the bank’s chairman Rick Haythornthwaite.

Shell has been carrying out a new growth strategy centred on extracting more oil and gas, moving from a focus on green energy and reducing spending on renewables. It hopes the shift will support production targets and drive greater returns for investors.

Chief executive Wael Sawan said the Arc Resources deal “complements our existing footprint in Canada and strengthens our resource base for decades to come.” Shell shares slid 1.7% despite a rise in the oil price.

The company has a significant holding in both the Jackdaw gas field and Rosebank oil project in the British North Sea and is in a stand-off with UK Energy Secretary Ed Miliband who has refused to grant drilling licences for the sites.

Danni Hewson, head of financial analysis at broker AJ Bell, said: “Laying out huge sums of cash never goes down well with investors, even if it will help future-proof Shell’s oil and gas output for years to come and further diversifies its interests away from the Middle East. 

“So, it’s understandable that Shell’s shares have come under pressure.

“Shell buying Arc puts to bed any hopes it will also buy BP any time soon. Shell was rumoured to be interested in BP last year, but nothing came of it. 

“The current obsession with the price of oil has catapulted these two heavyweights back into the headlines and many investors may be looking at oil stocks as a way of mitigating the potential impact of a global downturn.

“But the future is much less clear with long-term energy strategy and security creating tension.”

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