"I'm done with fossil fuels. They're done. They're just done."
CNBC's Jim Cramer didn't even feel the need to address the disappointing earnings from the oil majors. Chevron and ExxonMobil had just announced fourth quarter results, which saw profits drop again. Their stock prices were down by 2 percent or so. It didn't matter. He wanted to make a larger point.
"We're starting to see divestment all over the world. We're starting to see big pension funds say, 'listen, we're not going to own them anymore,'" Cramer said on CNBC. "The world's changed. There's new managers. They don't want to hear whether these are good or bad."
The entire energy sector has been hammered over the past 18 months or so. Low oil prices have hit the industry hard, but the malaise goes beyond a cyclical downturn. Investors are souring on the whole notion of oil and gas in general. Brent is trading at $60 per barrel and the share prices of many oil companies are at lower levels than they were four years ago when Brent was in the $30s.
"Look at BP. It's a solid yield. Very good. Look at Chevron, buying back $5 billion worth of stock. Nobody cares," Cramer said.
He said that major institutional investors want nothing to do with oil and gas because of concerns about climate change. Hefty shareholder payouts no longer matter. To be sure, this isn't just a concern about sustainability, as if it were a temporary investment trend. Institutional investors see peak oil demand looming, the rise of EVs, and increasingly stringent policies targeting the sector. It has become both a moral issue and a financial one. Arguably, this is all factoring into the steep selloff in energy equities over the past year or so.
"We're in the death knell phase. I know that's very controversial. But we're in the death knell phase," Cramer warned. "The world has turned on them. It's actually happening kind of quickly. You're seeing divestiture by a lot of different funds. It's going to be a parade that says, 'look, these are tobacco. And we're not going to own them.'" Related: U.S. Rig Count Drops As Oil Price Slide Accelerates
He finished up. "They're tobacco. I think they're tobacco. We're in a new world," he concluded, leaving the CNBC anchor at a loss for words.
To be sure, oil demand is still growing worldwide. Peak demand is not here yet. But Cramer thinks it's just a matter of time.
While the big picture is damning for Big Oil, it's still worth looking at the quarterly results from Chevron and Exxon, the original question put to Cramer. Both majors reported another disappointing quarter on Friday, which is not just the result of low oil prices, but also headwinds in natural gas, refining and petrochemicals. Exxon reported its first loss from its chemical unit in 15 years. The industry has overbuilt capacity and margins have deteriorated.
Meanwhile, Exxon offered a juicy detail in its slide deck. Permian production appears to have run into some trouble in the fourth quarter (red line on the graph).
Meanwhile, Chevron reported its worst loss in a decade - $6.6 billion - which can largely be attributed to the $10.4 billion write down it took. The impairment is the result of Chevron's Appalachian shale gas assets as well as an offshore project in the Gulf of Mexico and an LNG project in Canada.
Overall, Exxon has spent more than it generated in cash for the 8th time in the last 10 quarters. As previously reported, the dividends for the oil majors are on an unsustainable path. After factoring in dividends and share buybacks, the oil majors have been overspending for years, financing the gap with debt and asset sales.
"We expect the market reaction to be negative to this set of results today," RBC analyst Biraj Borkhataria said in a note to clients. "This leaves the company's dividend completely uncovered by organic cash flow for another quarter."
Something has to give.
By Nick Cunningham of Oilprice.com
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Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. More
Comments
Divestment campaigners of oil and gas stocks and those who like to burnish their environmental credentials by talking tough on oil and gas do it either out of ignorance or out of political agenda or both. They should offer practical solutions or shut up.
Divestment campaigners tell Big Oil, companies and sovereign funds to divest of their oil and gas stocks but they don’t tell them or provide them with a similar lucrative alternative as Norway’s Sovereign Fund, the world’s biggest found to its chagrin and was forced to drop its divestment plans otherwise the whole fund would have been undermined financially affecting the future and prosperity of Norway’s people and economy.
They tell people of the world to drop internal combustion engines (ICEs) and move to electric vehicles (EVs) but they neither tell them about the trillions of dollars needed for capacity expansion of electricity generation to recharge the millions of the EV’s batteries nor the fact that the overwhelming percentage of such an expansion will still come from natural gas, oil and nuclear energy.
Divestment and global climate change campaigners should first learn about the facts of life that underpin the global economy and therefore their prosperity and livelihood.
They should learn that there will be no post-oil era and no peak oil demand either and also no imminent global energy transition throughout the 21st century and far beyond and that the oil and gas business will continue to be the fulcrum of the global economy well into the foreseeable future. They should also learn that we’re now in an era of energy diversification where alternative sources to fossil fuels, notably renewables, are growing alongside—not at the expense of—the incumbents.
For energy transition to accelerate, it should have three realistic objectives: benefit to users, practicability and lucrative financial returns from renewables to match those from oil and gas. Mandatory transition will only achieve limited success.
Therefore, Jim Cramer of CNBC and others who like to pontificate on climate change and energy issues should think through what they are saying before giving ill-conceived utterances such as “fossil fuels are done” and looking instead at the whole picture.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Oil and gas not only drive transportation but are also feed stocks for medicine, plastics and synthetics of all kinds, clothing and make-up.
Tobacco is still paying big dividends and is surviving and diversifying, just like Big Oil. Nat gas and oil are still essential to heating. Resistance (electric) heat is horribly expensive. Heat pumps work only so well and in moderate climates and warmer.
As the world population grows demand will be for a few of the items covered above. Telling people to live in the stone age and that quality of medical care will not be popular.