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Energy Producers Are off the Hook

Wednesday - 7/10/2013, 3:48am  ET

A recent report issued by Organizational Studies suggests that global warming isn’t really an issue. Fewer than half of the geoscientists and engineers who participated in a survey maintain that global warming is a man-made phenomenon.

What’s more is that the lion’s share of survey participants blame the earth’s warming on natural causes, suggesting that global warming isn’t posing a serious threat. And according to a recent article in Forbes, weather professionals back this claim, pointing to normal weather patterns and not individual carbon footprints. 

As the debate over whether the earth’s warming is because of man or nature continues to rage, energy producers are taking socially responsible steps to reduce their carbon output. 

Royal Dutch Shell (NYSE: RDS-A), for instance, was among the presenters at a recent socially responsible investing conference. Outgoing Chief Executive Peter Voser noted how the company reduced its carbon emissions by 3% from 2011 to 2012. The company did this via reduced "flaring" in Nigeria and additional reductions in its downstream, or refining, operations. 

Shell's production is rising and so will its carbon footprint. It's a continual balancing act to reduce carbon emissions between its own operations and that of its customers, which burn the fossil fuels that Shell develops. It's going in the right direction as it pushes natural gas production, which generates less carbon emissions than its dirtier counterpart, coal. 

Shell's Voser announced in the first quarter that he would be retiring next year, and days ago his successor was named. Ben van Beurden, who has been running refining for Shell, a division that has been under pressure of late, will take the helm at the start of 2014. 

In a nut-Shell

Environmental issues aside, in Shell, investors are getting an international company with operations around the world developing shale, natural gas, liquified natural gas (LNG) in North America, the Canadian oil sands, and deepwater reserves in Nigeria, in addition to its petrochemicals production in Singapore. It's come across new gas reserves in Australia as recently as its first quarter, at which time, it also resumed production of a crude oil expansion project in Texas. Shell is also positioning itself more prominently in Latin America, where it made an LNG acquisition in recent months, adding Repsol to its portfolio in a $4.4 billion transaction. 

Even with its massive $203.4 billion market cap, Shell is expanding and it's not leaving shareholders behind in the process.

"Volatile backdrop"

In the company's recent first-quarter earnings call, chief financial officer Simon Henry commented on the "volatile backdrop" in which Shell is operating. Indeed, oil prices have been unpredictable and the spread between West Texas Intermediate (WTI) and Brent crude was widening. In recent days, oil prices have strengthened and the difference in price between the oil types has shrunk. While lower oil prices weighed Shell's bottom-line results, they're likely to boost performance in the current period.

Shell still managed to increase its EPS by 2% in the first quarter versus the year-ago results. It reported underlying earnings of $7.5 billion. 

In its first quarter, the energy conglomerate lifted its quarterly dividend by 5% to $0.45 and repurchased $1.3 billion worth of shares in the first several months of the year. The company generated $49 billion in cash flow over the past year. It has divested $5 billion worth of assets and acquired another $5 billion in more strategic assets over the similar period. 

 Market shift?

The recent and fatal train derailment in Quebec carrying U.S. crude oil, shook not only the region but also the industry. The accident seems to have placed a spotlight on the dangers of rail and strengthened the argument for carrying fossil fuels via pipeline - including TransCanada's (NYSE: TRP) Keystone XL project, which has been slowed as a result of a host of regulatory and environmental hurdles. Shares of TransCanada are up about 3% since the explosion.

While famous for its Keystone project, TransCanada is also active on the renewable energy front. The company recently acquired nine solar power facilities in Ontario. The project is expected to introduce some 86 megawatts of capacity - mostly by the end of 2014 - and is valued at $470 million. 

Despite the political wranglings TransCanada has faced, it continues to prepare the Keystone project and streamline the route to the Gulf Coast. The company generated $700 million in EBITDA in 2012 and the project isn't complete.

The company hopes to pursue an expansion of the pipeline into Nebraska, a portion of the pipeline which has been delayed, in 2014. TransCanada has KeyStone contracts with oil and gas shippers that extend for as long as 18 years.   The stock trades at a trailing 12-month P/E of 22 

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