Shell is all at sea

Once upon a time, you could be sure of Shell. If you go down to the investment woods today, the one thing you can be sure of is (another) big surprise. What used to be one of the stock market’s most reliable and predictable income generators suffered another spasm this week with the sale of an asset which it had described as “core” only a matter of months ago. This time it’s the shale oil and gas interests in the Permian basin in the US, one of the most prolific such areas in the world, sold off for $9.5bn.

Is this a good price? Who knows? The way the Shell board is behaving, it is hard to be confident, and the deal has too many of the marks of a forced sale. All but $2.5bn of the proceeds are promised back to us shareholders, which was enough to give the shares a bit of a kick up this week. The mechanism for those “additional shareholder distributions” will have to wait until the deal closes, but forecasting anything from this sprawling business has become almost impossible.

The rot set in last year, following the bizarre spectacle of the oil price falling below zero. This clearly so spooked the Shell board that they slashed two-thirds off a dividend which had only gone up for more than half a century. The short-sightedness of this move was highlighted just months later, when Shell announced that it seemed the oil world was not coming to an end after all. Instead, it would start raising the payout again, albeit at 4 per cent compound, a rate which would take 28 years to regain its previous level.

Another policy quickly followed, that the payout would now go up rather faster than previously indicated, and that share buybacks would restart. Meanwhile, a lower court in The Netherlands decided that it knew better than the board how the company should behave, and ordered Shell to speed up its carbon dioxide reduction plans. This was, and remains, a heaven-sent opportunity to follow Unilever’s example and reincorporate the business in the UK, but instead the CEO has kowtowed and promised to try and comply with this blatant judicial over-reach.

This week’s news, and the steady trickle of previously-announced buybacks, have taken the share price back to an 18-month high, but valuing the business remains as hard as when the dividend was cut. Analysts’ forecasts are little more than guesswork, and pages of figures with the results look impressive but are of little help to investors. The two figures that do mean something, the size of the group debt and the dividend, provide little guide to how the board will behave in future. From the outside, Shell looks like a business that is running before the green wind, with little or no idea of where it is going.

Not doing well by doing good

Before the end of the year, we are promised an exciting opportunity to earn even less on our savings than we do already: green bonds from the government’s own retail savings arm. Apparently, these things will have a three-year life, with interest rolled up and added to the repayment. The tax status is unknown.

This week saw the wholesale version launched, in the form of a 12-year, £10bn offer of government securities offering a yield of 0.87 per cent. Such is the demand to be seen to be doing something for the planet that the return is 0.025 per cent below that on the equivalent conventional gilt. The proceeds will go to whatever the government deems to be green, but in practice the money will disappear into the great government machine.

The lower interest rate will save about £28m over 12 years, or about 15 minutes of state spending, so you have to believe that every little helps. There is no financial reason why the institutions should pay up in this way, but it’s a small investment in a bit of virtue signalling. If they (or you) want to be seen to be making a little sacrifice in the great green cause, it’s a shame not to take the money.

What planet are they on?

Are you ESG’d out yet? Even before you’ve remembered that it stands for environmental, social and governance, there are signs that investors are suffering from ESG fatigue. A survey by Investing Reviews asked respondents which campaigns really got to them, and the patronising, woke offering from Jupiter topped the poll. Whether it was the image of the hermit crab (is this the fund manager, or the bewildered punter?) or the cheesy copy in its ads trumpeting how green Jupiter’s people are, we don’t know.

We do know that the record of the group’s funds is pretty crab-like, while Jupiter Fund Management shares are so deep in the mud that they cost the same as they did nine years ago. Still, at least the management under Andrew Formica has prospered mightily. ESG virtue-signalling is clearly good for some.

Incidentally, the runner-up in the irritation stakes is, predictably enough, abrdn, the boiled-down, unpronounceable remains of Standard Life Aberdeen. You can just imagine the consultants saying: let’s include this name for a laugh, along with some more serious proposals for the name change. The board will never buy it…

Coalman offers to deliver

They are also jolly green at Drax, owners of the UK’s biggest coal-fired power station which has pledged not to burn any more of the millions of tonnes under its feet after September next year. We could keep going, CEO Will Gardiner told the FT, if that would help everyone round the next energy corner. Very decent of him, and (at current prices) no need for a subsidy, which makes a pleasant change from almost all other offers of help. It might not look that good just ahead of the climate love-in at COP26, though.

Drax knows all about this game, since it has prospered mightily from subsidy farming in the UK’s energy market. It burns wood pellets, made from American trees and shipped across the Atlantic, burning oil as they go. On arrival, it counts as biomass (good) rather than the fossil fuel it might otherwise have eventually become. As Aneurin Bevan put it in 1945: “This island is made mainly of coal and surrounded by fish. Only an organizing genius could produce a shortage of coal and fish at the same time.”