Amid concerns that the Paris climate accord could have a detrimental effect on Royal Dutch Shell’s valuation, the company this week released a statement saying that they still expect to distribute all the inventories listed on their stock report regardless of any proposed production limit imposed by the pact.
CEO Ben van Beurden said in an interview with a prominent Dutch publication that the issues of standard reserves would not impact their revenues. The Paris accord has attempted to limit the amount of deposits that can be taken out of the ground due to rising carbon emissions.
“The basis of the company’s valuation is the next decade’s worth of reserve production and we don’t believe any climate outcomes are going to stop us from going ahead as planned,” said Van Beurden.
There are nearly 200 countries signed up for the Paris Climate Accord including the world’s first and second largest economies China and the U.S. plus the entire E.U. The aim of the agreement is to slowly wean the world off fossil fuels and try to limit any temperature increase to 2 degrees.
This has led to many of the world’s biggest energy companies investing billions into renewable and clean energy alternatives, and was highlighted by the acquisition of British Gas by Shell at the start of 2016.
Van Beurden also insisted that the oil market was exceptionably durable, especially after the collapse of oil prices from $120 to $30 per barrel. He said any revaluation after the climate deal would have limited consequences.
“There is no doubt that every fall in oil price costs a company like Shell billions of dollars, but they and other big players in the sector are slowly but surely transitioning to low-carbon energy alternatives,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management in a phone interview for Bloomberg. “I don’t think there will be any major changes in the firm’s dividend policies.”
The benchmark level for oil if companies can turn a profit is around $45-50 per barrel, and even a small increase in demand could send prices up. Next week an OPEC meeting could see a production freeze come in that could have that exact effect. Some analysts are confident that the output cap could go global if big non-OPEC countries like Russia get onboard with the plan.
