Two weeks ago, Big Oil suffered a string of board and court defeats at the hands of radical climate activists.
Exxon Mobil (-2.56%) lost three board seats to Engine No. 1, an activist hedge, in a mind-boggling proxy campaign. The No.1 engine told the Financial Times that Exxon will need to cut back on fossil fuel production in order for the company to position itself for long-term success. “What we’re saying is plan for a world where the world maybe doesn’t need your barrels,” Charlie Penner, No.1 Engine Chief, told FT. As many as 61% of Chevron shareholders (-3.77%) voted to cut emissions further at the company’s annual investor meeting a week ago, pushing back the company’s board of directors that had urged shareholders to reject it.
Meanwhile, a Dutch court ordered Royal Dutch Shell (-5.26%) to cut its greenhouse gas emissions harder and faster than previously expected. Never mind the fact that Shell had already pledged to reduce its GHG emissions by 20% by 2030 and to net zero by 2050. The Hague court determined that was not enough and demanded a 45% reduction by 2030 from 2019 levels.
And now Big Oil is starting to react.
CNBC reported that Shell is considering selling its stakes in America’s largest oil field, worth up to $ 10 billion.
The Anglo-Dutch supermajor would assess the sale of all of its 260,000 acres (105,200 hectares) in the Permian Basin, located mainly in Texas, according to media reports.
A week ago, Shell CEO Ben van Beurden pledged to ‘rise to the challenge’ in its transition to cleaner energy and pledged to accelerate plans to reduce greenhouse gas emissions following the court order last month.
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However, a subsequent social media post gives us a better insight into how van Beurden actually sees the situation:
“Imagine that Shell decided to stop selling gasoline and diesel today. This would certainly reduce Shell’s carbon emissions. But that wouldn’t help everyone at all. The demand for fuel would not change. People will refuel their cars and delivery trucks at other gas stations. “van Beurden wrote on LinkedIn last week.
He goes on to say:
“The company must take urgent action on climate change. But a court ordering an energy company to reduce its emissions – and the emissions of its customers – is not the answer. I think Shell should work with our customers and sectors to help them find their own pathways to achieving net zero emissions. This will help increase demand for new, low-carbon products. For companies to invest successfully, they also need bold government policies and regulations , clear and consistent. Greater collaboration between governments, businesses and customers will allow us and others to grow our low-carbon energy business in the fastest way. “
Shell Big Oil peers might agree with van Beurden’s point of view.
Reduce emissions, don’t cut fossil fuels
Shell’s plans to sell prime real estate and expand its low-carbon investments, including providing customers with electric vehicle recharges, hydrogen, wind and solar power, and biofuels, will not only reduce its oil production, but also support the demand for renewable energy.
However, Shell peers have come up with a very different strategy: reduce emissions without necessarily reducing oil and gas production.
Speaking at this year’s CERAWeek by IHS Markit energy conference, the dominant theme that emerged from the conference was that Big Oil wants to focus not so much on reducing oil and gas production as on mitigating the impact of its carbon and greenhouse gas emissions.
According to Exxon Mobil CEO Darren Woods and Vicky Hollub of Occidental Petroleum, reducing carbon emissions from fossil fuels and not the actual use of fossil fuels offers the best way to fight climate change.
Interestingly, the two CEOs pointed out that the world still needs oil and gas, and governments need to focus on mitigating global warming using technologies such as carbon capture and storage (CCS). instead of attacking fossil fuels.
Still, even the biggest hardline proponent of all, Exxon Mobil, has changed its tone significantly from just a few years ago.
On the company’s 2021 Investor Day, CEO Darren Woods outlined the company’s energy transition strategy, including plans to reduce production growth and increase cash flow in a bid to support a growing dividend. Exxon has revealed that it plans to keep production stable from 2020 to 2025 at 3.7 million boe / day, which is a 26% drop from the estimate of 5 million boe / day. for 2025 published just a year ago.
Still, Exxon plans to continue increasing production in the Permian basin and Guyana, with Permian production averaging 400,000 boe / day this year before reaching 700,000 boe / day by 2025. Exxon sees Guyana is also quickly becoming a key cash cow, but has indefinitely suspended other major projects such as Mozambique’s $ 30 billion LNG export project.
Woods has announced plans to increase investments in carbon capture and storage to ~ 3% of new spending, an improvement from the 1% he had previously allocated to CCS but still far from double-digit levels of European majors Total SE (-0.60%) and Royal Dutch Shell, Woods urged governments to stop picking winners and losers, but instead build carbon markets to “make sure we use the forces. market to try to reduce CO2 emissions in the most cost-effective way ”.
However, investors with deep pockets don’t buy it.
The 145-member coalition for a Responsible Exxon that oversees $ 2.5 billion in assets said Exxon Mobil needs to change direction and not just name new candidates to the board. Then, of course, engine # 1 drove the nail in with even more force.
Occidental Petroleum’s Vicky Hollub echoed Darren Woods’ views:
“What I think people don’t understand is that we shouldn’t be talking about phasing out fossil fuels. What we really need to talk about is eliminating emissions and if we can deliver and we Net zero carbon oil is what the world needs and the world cannot meet the goals of … the Paris Agreement without the help of the oil industry. leaders in this field. “
Hollub said OXY’s goal is not only to become a net-zero oil producer, but also to help other companies reduce their carbon footprints:
“We are going to build what will be the Permian’s largest direct air capture facility and we will partner with us to do that, this is United Airlines, because they also have a commitment and are focused on the goal of reach net zero by 2050. “
Hollub revealed that Occidental was committed to scavenging carbon from two ethanol plants and a steel plant in Colorado and sequestering it in the Permian Basin.
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Last week, Occidental Petroleum announced that its subsidiary Oxy Low Carbon Ventures planned to build and operate a pilot bio-ethylene plant that will apply technology that uses human-made carbon dioxide instead of raw materials sourced from hydrocarbons.
Bio-ethylene is currently produced from bioethanol mainly obtained from sugar cane. The pilot plant is expected to come into operation in 2022.
OXY is also against a carbon tax:
“A carbon tax would be bad for a large part of the industry, a carbon tax would be bad for consumers and in particular for the most economically disadvantaged consumers,” said the CEO of OXY at the meeting. ‘a virtual summit of Texas Independent Producers and Royalty Owners Association.
OXY has become the epitome of a merger and acquisition deal that went awry after its $ 55 billion acquisition of Anadarko left it with massive debt.
OPEC, Russia the biggest winners
However, not all players in the fossil fuel industry are alarmed by the growing wave of climate activism or Shell’s decision to cut oil production.
Indeed, OPEC and the major national oil companies (NOCs) are reveling in the schadenfreude following Big Oil’s latest woes, seeing it as a great opportunity to grab more business and market share.
The defeats of Exxon, Chevron and Shell in the boardroom and in the courtroom are sweet music to the ears of Saudi national oil company Saudi Aramco (2222.SE), Russian Gazprom ( GAZP.MM) and Rosneft (ROSN.MM) as well as Abu Dhabi National Oil Co. looking to capitalize by filling the void that will remain if these companies start cutting oil production in an effort to pacify investors.
“The demand for oil and gas is far from peaking and supplies will be needed, but international oil companies will not be allowed to invest in this environment, which means national oil companies must intervene,” he said. Amrita Sen of consultancy firm Energy Aspects told Reuters.
By Alex Kimani for Oil Octobers