Royal Dutch Shell (LSE: RDSB) and BP (LSE: BP) shares have faced some enormous challenges over the past decade. The oil price crash in 2014 and then the pandemic in 2020 have destabilised their businesses and forced the companies to take evasive action.
But as a value investor, I’m always interested in companies that have seen their share prices fall. So, with that in mind, I’ve decided to take a closer look at these struggling giants.
Royal Dutch Shell’s challenging 2020
Last year was one of the worst in Shell’s storied history. Its latest results show the business lost $21.7bn in 2020. That was one of the biggest losses ever recorded by a UK company.
Diving profits forced the company to slash its dividend for the first time since World War Two. The group has also embarked on a cost-cutting drive. Nearly 10,000 job losses have been announced so far.
This may not be the end of the company’s problems. Shell is facing some huge challenges. The corporation risks being left behind in the green revolution. That’s one reason why investors have been selling the Shell and BP share price.
On the other hand, I see opportunities ahead. If Shell can keep costs low, continue to sell non-core assets, and keep investing in the future, the group could return to growth.
Management seems confident as well. After cutting its dividend last year, Shell has increased the quarterly payout twice in the past six months. I think that’s positive. But considering the challenges the organisation faces, I’m not a buyer of the shares right now.
The outlook for the BP share price
BP is facing the same pressures as its larger peer. The company reported an $18.1bn loss for 2020. That was its first annual loss in a decade. That reflected the challenges oil and gas businesses face.
However, I think BP is rising to the challenge more than Shell. The company wants 50GW of renewables such as wind, solar and hydropower in its portfolio by 2030, up from just 2.5GW. It will cost the group an estimated $60bn to hit this target, so it’s a big ask.
Nonetheless, the very fact BP has set out such an impressive target suggests to me the business has the drive to make it work. As of yet, Shell hasn’t committed to spending anything like that.
Of course, the company faces considerable risks in hitting the renewables target. Its balance sheet is already stretched with $41bn of debt and profits from oil & gas are falling. This will limit its ability to spend and repay borrowings. Therefore, shareholder returns, such as dividends, may be at risk.
Still, I think BP has the drive to hit its goals. That’s why I believe the share is a better fit for my portfolio. The group seems to be preparing for the future, which is positive in my eyes compared to the challenges the organisation currently faces.
