Can Big Oil Survive? Examining the New Landscape

December 12, 2020

New York Times:

HOUSTON — Over the last 135 years, Exxon Mobil has survived hostile governments, ill-fated investments and the catastrophic Exxon Valdez oil spill. Through it all, the oil company made bundles of money.

But suddenly Exxon is slipping badly, its long latent vulnerabilities exposed by the coronavirus pandemic and technological shifts that promise to transform the energy world because of growing concerns about climate change.

The company, for decades one of the most profitable and valuable American businesses, lost $2.4 billion in the first nine months of the year, and its share price is down about 35 percent this year. In August, Exxon was tossed out of the Dow Jones industrial average, replaced by Salesforce, a software company. The change symbolized the passing of the baton from Big Oil to an increasingly dominant technology industry.

“Is Exxon a survivor?” asked Jennifer Rowland, an energy analyst at Edward Jones. “Of course they are, with great global assets, great people, great technical know-how. But the question really is, can they thrive? There is a lot of skepticism about that right now.”

Exxon is under growing pressure from investors. D.E. Shaw, a longtime shareholder that recently increased its stake in Exxon, is demanding that the company cut costs and improve its environmental record, according to a person briefed on the matter. Another activist investor, Engine No. 1, is pushing for similar changes in an effort backed by the California State Teachers Retirement System and the Church of England. And on Wednesday, the New York State comptroller, Thomas P. DiNapoli, said the state’s $226 billion pension fund would sell shares in oil and gas companies that did not move fast enough to reduce emissions.

Of course, every oil company is struggling with the collapse in energy demand this year and as world leaders, including President-elect Joseph R. Biden Jr., pledge to address climate change. In addition, many utilities, automakers and other businesses have pledged to greatly reduce or eliminate the use of fossil fuels, the biggest source of greenhouse gas emissions, and have embraced wind and solar power and electric vehicles.

European companies like Royal Dutch Shell and BP have already begun to pivot away from fossil fuels. But Exxon, like most American oil companies, has doubled down on its commitment to oil and gas and is making relatively small investments in technologies that could help slow down climate change.

As recently as last month, Exxon reaffirmed it plans to increase fossil fuel production, though at a slower pace. The company is investing billions of dollars to produce oil and gas in the Permian Basin, which straddles Texas and New Mexico, and in offshore fields in Guyana, Brazil and Mozambique.

Exxon committed to its strategy even as it acknowledged that one of its previous big bets did not go well. Exxon said it would write down the value of its natural gas assets, most of which it bought around 2010, by up to $20 billion. The company is also laying off about 14,000 workers, or 15 percent of its total, over the next year or so as it seeks to cut costs and protect a dividend that it had increased every year for nearly four decades until this year.

Politico:

Dozens of House Republicans are warning Federal Reserve Chair Jerome Powell against proceeding with climate risk regulations for the financial system, in the first major political rebuke of the Fed’s new efforts.

In a letter Wednesday to Powell and Fed Vice Chair for Supervision Randal Quarles, the 47 GOP lawmakers discouraged the central bank from imposing stress tests on lenders to measure their vulnerability to climate change — a move that they said could spur banks to cut ties with the oil and gas and coal industries.

The Republicans also urged the Fed to limit its involvement in the international Network for Greening the Financial System, a group of central banks and regulatory agencies focused on mitigating financial shocks arising from climate risks. Quarles announced last month that the Fed had asked to join the group.

The organized pushback by the Republicans is a preview of what the Fed and other financial agencies face as they begin to address economic fallout from global warming and a possible transition away from reliance on fossil fuels.

“This is less about predicting financial stress and more about creating financial stress for politically incorrect, disfavored industries,” said Rep. Andy Barr (R-Ky.), who organized the letter.

The Fed regularly conducts tests on large banks to measure their ability to withstand adverse economic conditions, including those presented by the coronavirus pandemic. Stress tests on climate could gauge their resilience to financial risks posed by extreme weather and the transition to a carbon-neutral economy. The Fed has not announced plans to incorporate climate into stress tests.

The Fed has only just begun to share its views on the subject. Last month, Powell said the Fed is “very actively in the early stages” of getting up to speed but that he believed climate change posed a material risk in the financial system.

NPR’s interview with John Kerry raised some eyebrows because of his mentioning having conversations with oil companies. Given the changes going on in the economy, the incoming Administration has a strong hand with Big Oil.
The majors have all been on record supporting the Paris Agreement, and a Carbon Tax.
They might be persuaded to use their political muscle to help the new administration shepherd some version of that through congress – since most Republicans now know, also, that they have to find a new position on climate, and a carbon tax is the “free enterprise” solution that they might support.

In addition, the administration will seek to re-apply methane regulations lifted by the Trump administration, something, again, that oil/gas majors want, as the biggest companies have the resources and will to comply, whereas most of the violations come from smaller, less well-capitalized players.

NPR Consider This:

INSKEEP: I’m interested in your conversations with energy companies that you’re referring to. Are they reaching out to you because of your new position? Are you reaching out to them because they need to be on board with what you’re doing? What’s going on?

KERRY: I’m reaching out to them because I want to hear from them. Right now, we’re not able – you know, we’re not in – we have to wait till January 20 before we engage substantively promoting any policy. But I’m listening to what their needs are and how they view the world so I can begin to understand better what the possibilities may be once the president is sworn in on January 20.

INSKEEP: I’d like to ask about this particular democracy that we’re living in, Mr. Secretary, and how you address a long-term problem like climate change in this democracy. There is a minority of people that doesn’t agree with climate science. And we’re in a country where a minority of people can stop a lot of what you would see as progress. Do you feel that you understand how to make progress, given the unique challenges in this country?

KERRY: I believe the way we make progress is by delivering, by showing people very specifically what the benefits are, what the facts are and by building a consensus. I mean, that is the process of democracy. It’s been made harder in these last years because of denialism that has been exacerbated purposely by entities and by politicians. But I do believe the marketplace actually has the ability to be a very powerful force for good and for things to happen. And politicians can kind of get in the way and provide some road bumps, but they’re not going to stop what’s happening now.

And the pressure keeps ratcheting on Exxon to change course:

Houston Chronicle:

Exxon Mobil plans to lay off 723 Houston-area employees early next year in response to the historic oil downturn caused by the coronavirus pandemic.

The nation’s largest oil company told the Texas Workforce Commission this month that layoffs will take place in February at its offices in Spring and The Woodlands. The layoffs, announced in October, are part of Exxon’s plans to cut 15 percent of its global workforce, including 1,900 U.S. employees, to reduce costs during the downturn. The Irving-based oil major employs about 12,000 in the Houston area.

“These actions will improve the company’s long-term cost competitiveness and ensure the company manages through the current unprecedented market conditions,” Exxon said in October. “The impact 

Not just Exxon is under pressure, as dealing with climate effectively will clearly be an important determinant for companies that expect to attract and keep the most talented executives.

Financial Times (Paywall):

Royal Dutch Shell has been hit by the departure of several clean energy executives amid a split over how far and fast the oil giant should shift towards greener fuels. The wave of resignations comes just weeks before Shell is set to announce its strategy for the energy transition. Some executives have pushed for a more aggressive shift from oil but top management is more inclined to stick closer to the company’s current path, according to four people familiar with the matter.

Marc van Gerven, who headed the solar, storage and onshore wind businesses at Shell, Eric Bradley, who worked in Shell’s distributed energy division, and Katherine Dixon, a leader in its energy transition strategy team, have all left the company in recent weeks. Dorine Bosman, Shell’s vice-president for offshore wind, is also due to leave the company. Several other top executives in the clean energy part of the business also plan to exit in the coming months, two of the people said.

Not every move is known to be linked to frustration about the pace of change but people familiar with the internal debate said there were deep divisions over the timeframe for reducing the company’s dependence on oil and gas revenues, which had influenced at least some of the departing executives.

One Response to “Can Big Oil Survive? Examining the New Landscape”

  1. J4Zonian Says:

    “Over the last 135 years, Exxon Mobil has survived hostile governments”

    No governments have been hostile to Exxon.


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