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Should Energy Stock Investors Worry About Public Relations?

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As part of its efforts to reduce operational carbon footprint, Europe’s largest energy company Royal Dutch Shell plc has agreed to offload bulk of its oil sands interests in Canada for $7.25 billion. Barring a 10% stake in the Athabasca mining project near Fort McMurray in Alberta, the company will sell all its production assets in a complex transaction involving Calgary-based Canadian Natural Resources Ltd. (CNQ - Free Report) and U.S. explorer Marathon Oil Corp. (MRO - Free Report) .

The pact is not only an important step in executing on Shell’s plan to divest $30 billion of properties during 2016-2018 to pay for its BG Group merger but the proceeds will also go a long way in cutting the company’s debt load.

However, the talking point from the asset sale continue to be Shell’s progress towards cleaner energy and the CEO’s warnings that inability to do so might lead to a loss of public support.

CEO-Speak: Public Perception Matters

According to Royal Dutch Shell CEO Ben van Beurden, public trust deficit is the ‘biggest challenge’ facing the company, which, in turn, could jeopardize its long-term future. Despite all ‘good intentions,’ lack of tangible developments toward cleaner fuels might irk stakeholders, as the societal acceptance of the current energy order continue to disappear.     

However, he maintained that the transition to a carbon light regime will take time and government initiatives – including a carbon tax – will be required to discontinue using the most polluting sources of energy like coal and oil.

Walking the talk, the Anglo-Dutch major, which is working hard to rebrand itself as a natural gas company, has pledged to increase its investment in renewable energy to $1 billion annually by 2020 though the amount is still negligible compared to its yearly capital expenditure of $25 billion.

Finally, Shell – a strong proponent of a carbon tax – has linked 10% of directors' bonuses to their success in managing greenhouse gas emissions in refining, chemical and upstream activities.   

Big Oil: Embracing the Shift

Royal Dutch Shell is not the only firm looking to go green.

For the record, Shell is exploring opportunities for offshore wind power. On the other hand, French biggie TOTAL SA continues its renewable energy charge through stakes in a wind company, a battery manufacturer and a solar-power retailer.

Meanwhile, Norway’s Statoil ASA exited its business in the Canadian oil sands last year and has recently announced that ‘new energy’ will constitute 15-20% of capital expenditure by 2030, up from just about 5% now. And the biggest of them all – ExxonMobil Corp. (XOM - Free Report) – has invested heavily on algae biofuel, touted to be a ‘game changer’.

Or Is It More of a Public Relations Exercise?

While oil and gas companies’ clean energy push are welcome, their core businesses are still heavily reliant upon the extraction and refining of fossil fuels. And yes, even Shell’s Canadian oil sands asset sales was pure economics, as mining crude from those properties require large capital outlays and several years of development before any cash flow is realized.

This is a high-risk strategy considering the extra costs associated with the extraction of oil from the oil sands compared to production from conventional oil wells. At the prevailing low oil environment, it makes little economic sense.

Should Investors Worry About the Public Relations Battle?

The energy industry has waged a losing public relations battle, particularly against environmentalists – thereby facing an existential threat. Some people are not comfortable with greenhouse gas-emitting fossil fuels and there are others who just want to shut down the industry completely. However, most would agree that the world will run on fossil fuels for decades to come.

As far as energy investors are concerned, it’s in their best interests to focus on a company’s public relations as it possesses the power to make or break a project. Especially true for pipeline companies, it is to be noted that public opposition to some of their projects have resulted in significant losses and price discounts due to inadequate infrastructure. Mostly attributed to message failure, the protestors are now more organized and better funded than ever.

Yes, the new U.S. government under President Donald Trump is supportive of the energy industry in general with particular emphasis to rev up infrastructure spending. However, the sponsors need to engage with the people – through proper public relations – and not just play around with vague terms such as ‘jobs’ and ‘economic benefits’. Apart from Keystone and Dakota Access, which were saved by executive orders from Trump, too many pipelines have got stalled because of politics and bad publicity – be the Constitution Pipeline, Georgia’s Palmetto Pipeline, or the Northeast Energy Direct project.        

To sum it up, proper management of public relations is a must in capturing the interest of investors and industry experts.

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