D-Day Royal Dutch Shell?

Officially the discussions today are about a plan to get rid of the company‘s dual share structure. Since November, the plan to restructure the shares and move to London have been known, but the outcome is officially not yet clear. Proponents of the RDS plans have been arguing that a simplification of the share structure is needed, to strengthen the company’s competitiveness, while also making dividend payments and share buybacks easier.

For the Netherlands, and a major part of the Royal Dutch Shell watchers, the decision is still a thing hard to grasp, as a major name in global oil and gas is not only lost, as Royal Dutch Shell (RDS) will become Shell, but it also clearly ends a strong link with one of its founding countries, the Netherlands. The plans still need to be approved by at least 75% of shareholders, but this seems already to be available. A possible move to London is expected in early 2022, ending the “Royal Dutch” link of the company for good.

There are several underlying reasons for the “unexpected” move by RDS, but most are arguing that a Dutch court decision in May 2021 has pushed the company to move. The Dutch court, in a remarkable and still disputed ruling, has ordered RDS to cut its carbon emissions by 45% by 2030, partly based on a mix of environmental and human rights issues.

Even that RDS has been very politically correct in its rebuttal of the court ruling, as it is appealing already, it is clear that the threat of being forced by a Dutch court, or continuing NGO legal cases in the Netherlands, to cut emissions worldwide by 45% (2030) for not only its own operations, but also for all parties in its total value chain, including consumers, is a bridge too far.

Operating globally in oil and gas, upstream-downstream, is not really feasible if you are also forced to quell or decrease emissions of others at the same time. Shell has however still said the last weeks that a move to London will not affect its environmental policies, but this still needs to be seen. The company however has become extremely engaged in setting up major global renewable energy projects (offshore wind, solar) but also in the line of biofuels or low-carbon developments. These projects have however not at all moved the sentiments of the anti-Shell front and activists.

Not only environmental or climate change issues are forcing the company to reconsider its future or company structure. Analysts have been stating that overall taxation also has been a major driver behind the dramatic move. At present, due to its Dutch HQ and taxes, dividends on its “A” shares are hit by a 15% Dutch withholding tax. For the “B” shares payments are distributed through a “Dividend Access Mechanism” that sees them streamed through a trust registered on the Channel Island Jersey to avoid the Dutch tax.

By now moving all into a single-share structure, while having Great Britain as its tax home, tax issues are much easier and clearer, as Great Britain doesn’t put dividend withholding tax. These changes are important for shareholders, as RDS is planning to payout around $7 billion in proceeds from the sale of gas assets in the U.S. to ConocoPhillips.

Already the move to move the “A” (euros) and “B” (GBP) into one structure is expected to bring shareholders around $2 billion in not-to-pay dividend taxes. Insiders also have stated that most institutional investors and funds have agreed already to the move and share structure changes.

There are still some clouds on the horizon however. Even that a proposal by the Dutch Greens to put in place an ‘exit-tax’ has not been approved, a move from the Netherlands to the UK will not be cheap. Shareholders fear that there could be a retrospective assessment of RDS current profit taxes in the Netherlands. Some indicate that RDS could be hit by a possible $10 billion tax addition the coming months.

For the Netherlands as a whole, the current move is not a positive one at all. The RDS move to London is the second major Dutch international giant that has left, after Unilever made the same move. The still very strong investment environment in the Netherlands is under pressure, as other giants maybe considering a listing or set up in the country are now going to scratch themselves behind the ears. It is not a good sign for Dutch investment climate at all.

At the same time, which some NGOs and activists don’t understand it seems, the RDS move will have an effect on the company’s willingness to invest in the energy transition of the Netherlands. Until now, RDS was Dutch, with all its ups and downs. A full-scale Shell position in London will not only diminish the Dutch feeling, but also its needs to invest in offshore wind or target a full-scale energy transition. The idea that a majority of shareholders will enforce the Dutch court ruling seems to be an idee fix.

The overwhelming majority of institutionals at present is not going to force a dramatic change for sure. Current oil and gas prices, and possible higher margins in the future, are too good to be thrown away. The Anglo-Saxon business and investment views are going to be leading, not the Dutch Calvinistic Do-Good sentiments.