Wednesday, June 02, 2021

Changing Oil

The oil industry is changing. as it is dragged --  kicking and screaming -- into the future. Tom Friedman writes

Since the 1990s, the wisest oil-producing countries and companies have regularly reminded themselves of the oil patch adage that the Stone Age did not end because we ran out of stones; it ended because we invented bronze tools. When we did, stone tools became worthless — even though there were still plenty on the ground.

And so it will be with oil: The petroleum age will end because we invent superior technology that coexists harmoniously with nature. When we do, there will be plenty of oil left in the ground.

So be careful, wise producers tell themselves, don’t bet the vitality of your company, community or country on the assumption that oil will be like Maxwell House Coffee — “Good to the last drop” — and pumped from every last well. Remember Kodak? It underestimated the speed at which digital photography would make film obsolete. It didn’t go well for Kodak or Kodachrome.

The world's largest oil company -- Exxon-Mobil -- didn't get that memo:

Today, it is no longer the biggest. As a result of its head-in-the-oil-sands-drill-baby-drill-we-are-still-not-at-peak-oil business model, Exxon lost over $20 billion last year, suffered a credit rating downgrade, might have to borrow billions just to pay its dividend, has seen its share price over the last decade produce a minus-30 percent return and was booted from the Dow Jones industrial average.

Last week, green activists finally got through to the corporate board room:

A little hedge fund called Engine No. 1 delivered an unprecedented master class in mean green using the tools of democratic capitalism. A plucky, purpose-driven investment fund, Engine No. 1 set out to force Exxon to improve its financial returns by getting much more serious about gradually transitioning — through innovation and acquisitions — into being an energy company, not just an oil and gas company.

At Exxon’s annual meeting, Engine No. 1 offered up a slate for four new members of Exxon’s 12-member board. The four represent deep energy expertise and climate solutions. The slate committed to push the oil giant to a net-zero emissions strategy by 2050, more investments in clean energy systems and more transparency about Exxon’s energy transition, with metrics and milestones, as well as disclosure of its lobbying payments and partners, suspected of undermining the science around climate change.

And darn if half the slate — Gregory Goff and Kaisa Hietala — wasn’t immediately elected by wide margins, and at least one other member might be as well when ExxonMobil finishes counting the votes from its very, very bad day.

Engine No. 1 was successful because it got three of the four biggest pension funds in America — fed up with Exxon’s relentless value destruction — to vote for its nominees. We’re talking about the California Public Employees’ Retirement System, the California State Teachers’ Retirement System and the New York State Common Retirement Fund. Also, three of the world’s biggest fund managers, Vanguard, State Street and Black Rock, which together own more than one-fifth of all Exxon stock, each voted for part of the dissident slate.

Oil hasn't left the building yet. But it's on the way out. Have Justin Trudeau and Jason Kenney got the memo?



jrkrideau said...

Exxon…might have to borrow billions just to pay its dividend….
why does the name Ponzi come to mind?

I think Trudeau has some glimmerings about the end of oil-dominance though some of his actions don't reflect this. My bet is that we are seeing short-term political expediency overriding sound environmental sense. I get the impression that some of his cabinet and advisors are more environmentalists than he is.

Kenny really seems to think that the 1970's boom times are just around the corner. Not only is he betting on a resurgence of oil demand but he is trying to open a new coal mine in what appears to be pristine wilderness. This is not only an environmental horror, who does he and the coal-mining company think is going to buy this coal in 10 years? Coal is a dying industry. Even China, which I believe is the major market is closing older, inefficient, coal-fired generating plants and has a zero emissions goal for something like 2050. They are not going to get out of coal for a long time but demand is going to drop.

I wonder if Kenny has ever heard about the public transit in Shenzhen, China? It has 16,000 electric buses and no petroleum powered buses. It also has 22,000 electric taxis. The oil market is shrinking.

Owen Gray said...

Exactly, jrk. Facts are stubborn things.

Anonymous said...

It shouldn't be difficult for Exxon to adapt. They just have to go through the company archives and go over the research their scientists were doing four decades ago.

Exxon knew a lot about climate change as early as 1977. In the 1970s and 1980s, the company had top scientists launch an ambitious research program, gather empirical data and build rigorous climate models. They spent more than $1 million researching how much CO2 is absorbed by oceans. In 1978, Exxon's senior scientist warned that doubling greenhouse gases in the atmosphere would increase average global temperatures by two or three degrees, which is consistent with today's scientific consensus. He warned that there was a window of 5 to 10 years before hard decisions would be needed on energy strategies.

Shortly thereafter Exxon diversified into wind and solar power. However, a few years later, following a change in the board of directors, Exxon shelved all that and doubled down on climate denial.

We could have been living in a very different world today if Exxon's directors had followed their scientists. Knowing what we now know, it's criminal for our politicians to continue to sit on the fence.


Owen Gray said...

We knew the truth decades ago, Cap. We're in this spot because we chose to be willfully ignorant. Now that the evidence is all around us, ignorance will no longer sell.

The Disaffected Lib said...

There's another item in today's NYT about the fossil giants and how they're cutting their methane emissions. They're doing what was perfected in Alberta's oil patch - selling their high carbon, low production wells to shelf companies that work them for whatever they can get and then go bankrupt when clean up time rolls around.

"as oil and gas giants start a long-awaited shift away from fossil fuels, they are shedding some of their most polluting assets to companies that provide almost no transparency into their operations."

"When ConocoPhillips sold off its old gas wells in the San Juan Basin in northwestern New Mexico to Hilcorp Energy in 2017, it offloaded a struggling and aging operation that had weighed on its bottom line. The fossil fuel giant also rid itself of heavily polluting assets.

"That year, ConocoPhillips reported that its greenhouse gas emissions had fallen by some 20 percent. In 2018, it became a founding member of the Climate Leadership Council, a coalition of businesses calling for a carbon tax.

"But those emissions didn’t simply vanish. Hilcorp Energy, owned by the Houston-based billionaire Jeff Hildebrand, was a top polluter, according to the E.P.A. data."

Nice trick. You dodge the regulators, offload the dirty assets that will eventually become a public charge, and then you take a victory lap, boasting of how you've cut your emissions.

Owen Gray said...

Yet another example of disaster capitalism, Mound. Privatize profits, but leave it to the public to cover the losses.

John B. said...

Why is it that among politicians it seems that only the lefty basket cases have any familiarity with what's taught in the business schools or any inclination to browse through the industry journals? Could it be that the other guys are that lazy? Cost externalization to public expense has been the primary driving force of investment class strategy ever since the lying libertarian economists brought in a win in the skirmish over labour arbitrage.

Maybe the other guys aren't that lazy and stupid; maybe they're just clumsy liars. In any case, they've been a pretty cheap date.

Owen Gray said...

They're cheap for their supporters, John -- who have not had to pay for their mistakes. For the rest of us, they've been a very expensive flirtation.

Lulymay said...

With respect to Disaffect Lib's comment, I just read recently that the state of New Mexico has the same problem as Alberta: all sorts of abandoned wells, company owners "bankrupt" and the monstrous costs of clean up left to the taxpayers.

It is a never ending scenario with a series of right wing political governments two-stepping along with the the same old dance card.

Owen Gray said...

This really is an old dance, Lulymay. You'd think that by now most of us would know that we're being conned.