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Which Oil Majors Are Best Positioned For The Future?

Eagle Ford

Exxon has been a first choice for institutional investors because of its stable performance over the decades—and of course, its dividend policy. But times are changing, and investors today are paying more attention to climate change and a company’s preparedness for the seemingly unavoidable transition to a lower-carbon economy in most parts of the world.

The latest report from CDP should worry the top management of Exxon and that of its peer Chevron. It should worry them very much. One must adapt to survive— a fact that Old Spice, who effectively reinvented itself to keep up with the next generation, knows all too well.

The CDP is an organization that tracks environmental data from a variety of major companies, and supplies this data to a network of 827 large investors who have combined assets under management of US$100 trillion. Members of this network include Norway’s Oil Fund and Blackstone Group.

And we know that major investors and institutions are backing away from companies perceived as environmentally unfriendly—and oil seems to be taking the brunt of this divestment craze, which critics may view as ineffective and misguided, but a reality nonetheless. The message to the oil industry is a clear one: go gas or go home.

The CDP’s latest report ranks 11 energy supermajors on the degree of their preparedness for a lower-carbon economy. Exxon came in tenth, a spot below Chevron, and one spot above Suncor. The Canadian oil sands giant was the worst performer, precisely because it is an oil sands giant.

This is rather bad or even a bit humiliating, given that even Brazil’s Petrobras, the mismanaged company with the biggest debt load in the industry, is ahead of both Exxon and Chevron, at number 7. Related: Japan Is Aggressively Buying Up Oil And Gas Around The World

The top performers are, in descending order, Norway’s Statoil, Italian Eni, and French Total.

The 11 companies were rated in terms of their fossil fuel asset mix, which is why Statoil received such a high score – because it has the most gas in its overall mix, which is not nearly as frowned upon as its dirty cousin, oil.

Shell (at #4) also has a wealth of gas reserves after the acquisition of BG Group, as does BP, which is why it’s been ranked at #5.

The other metrics that defined the final score were capital flexibility, climate governance and strategy, emissions and resource management, and water resilience, the latter referring to a company’s exposure to water stress problems, which, says the CDP, could halt production or increase costs.

Based on these metrics, Exxon and Chevron are not managing their upstream business very efficiently, according to the report—a finding that’s bound to give investors pause, which is not so good for the two companies, especially Exxon, which already was strong-armed by a group of investors to acknowledge even the existence of climate change and to provide a place on its board for a climate scientist. Related: A Thanksgiving Tale: 50 Million Turkeys And A 5 Billion Mile Drive

According to the CDP, Exxon’s biggest problems have to do with emissions and climate governance and strategy, although in terms of capital flexibility, it scored better than others on the list.

Chevron, which, according to its website, last year scored 99 points on CDP’s 2015 Climate Change Report, was downgraded by the organization for its emissions and the low portion of gas in its asset mix, at just 31 percent. This, however, is set to change, the group notes, with Gorgon and Wheatstone, two of the largest LNG projects in the world.

Gas, it seems, is a huge factor when ranking the energy supermajors on the list. Many see it as a bridge fuel between oil and zero-emission renewables, so the solid preparation for a lower-carbon economy logically includes growing their exposure to gas. Based on this, if the worst performers take heed of CDP’s findings, we might see some increased exploration and M&A activity in gas in the near future.

By Irina Slav for Oilprice.com

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Leave a comment
  • Jack Ma on November 24 2016 said:
    The majors better cut their dividends and stop borrowing money to pay them and instead they should go find some of that there black gold deep in the oceans and build up them there reserves or else them there majors will be in some deep water. This is the conundrum they face now so place your bets. I bet on Shell in the GOM and Brazil and Mex-eee-ko for some big pools of oil. Frackers may pump 4% at best and that is without FCF. The real oil is in the sea. IMHO
  • David Hrivnak on November 24 2016 said:
    I for one avoid the oil majors with Exxon being the worst for them trying to debunk climate change. We now have plug in cars and solar for the home AND cars. Rather than bribe stockholders with large dividends they should invest in a clean energy future.
  • Otiose on November 25 2016 said:
    The embedded assumptions in this article's list of oil companies remind me of the bubble the left was and is trapped within. They never saw Trump coming. Climate change has been over hyped and over the last few decades the number of people who understand this has only been increasing. This will eventually take hold among the governing class. (Already no climate treaty could ever pass the US Congress.)

    Carbon based energy production is not going to be a handicap for investors in the foreseeable future. In other words the top two companies are Exxon and Chevron.

    Oil and natural gas will have center stage for the foreseeable future. There will be a shift though as to which companies will benefit the most. Fracking is just beginning. The political changes and the additions and improvements to infrastructure (pipelines, etc.) will take time but over the next several decades we will see fracking spread within the US (to California) and abroad. The fracking technologies will only improve (i.e. get more efficient i.e. cheaper). Land based fracking will dominate over our lifetimes.

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