(Bloomberg) — After coming beneath assault from each environmentalists and buyers within the first half of his seven-year tenure on the helm of Exxon Mobil Corp., Darren Woods is on the offensive.
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Already this 12 months, Woods filed an arbitration case towards Chevron Corp. for trying to purchase into Exxon’s large offshore oil venture in Guyana and a lawsuit towards buyers demanding that his firm minimize emissions. Simply months earlier, he agreed to a $60 billion takeover that might make Exxon the most important US shale producer.
Woods can also be changing into way more strident about local weather targets in speeches and interviews, arguing that fossil fuels will nonetheless be wanted for years to come back to satisfy power demand and the world isn’t on a path to net-zero carbon emissions by 2050 as a result of persons are unwilling to pay for cleaner options.
The message could also be controversial, however it’s resonating on Wall Avenue, the place “ESG” is quick changing into a loathed moniker as bold environmental, social and governance pledges are rubbing towards the necessity for safe and inexpensive power. Exxon is up 89%, greater than 4 instances that of the S&P 500, since dropping a climate-fueled proxy battle with Engine No. 1. in 2021.
It’s a exceptional turnaround from the pandemic period, when Exxon posted its biggest-ever loss, workers had been leaving in droves and the shareholder revolt compelled Woods to exchange 1 / 4 of his board. Exxon’s revival is emblematic of a resurgent American oil trade, which is now pumping 40% extra crude every day than Saudi Arabia, forcing OPEC and its allies to retreat.
“It wasn’t that way back it seemed like taking the inexperienced strategy was what the trade wanted to draw capital,” stated Jeff Wyll, a senior analyst at Neuberger Berman, which manages about $440 billion. However Russia’s invasion of Ukraine “flipped the swap and power safety grew to become extra necessary. Exxon benefited as a result of they by no means stepped again from their conventional enterprise.”
When Woods takes heart stage on the CERAWeek by S&P World power convention in Houston this week, he’s more likely to double down on his long-held view that fossil fuels shall be in demand for many years to come back and that governments and shoppers — quite than simply Massive Oil — might want to pay for any significant transition to greener power.
For many who see Exxon and Massive Oil as answerable for many years of delay and misinformation about local weather change, it’s an unpopular argument. However it’s one made out of a place of accelerating monetary power.
Exxon paid out $32 billion in dividends and buybacks in 2023, the fourth-highest within the S&P 500, and is pledging extra this 12 months. Its pending $60 billion acquisition of Pioneer Pure Sources Co. will make it the nation’s dominant producer of shale oil, placing it on the high of the trade largely answerable for OPEC+ dropping market share to the US.
Exxon additionally operates one of many world’s fastest-growing main oil developments in Guyana, the most important crude discovery in a decade, and just lately accomplished a raft of refinery and petrochemical expansions.
Its supermajor rivals at the moment are racing to catch up.
Chevron agreed to purchase Hess Corp. for $53 billion, largely to realize a 30% stake in Exxon’s Guyana venture. However Exxon claims the deal “tried to avoid” a contract that provides it proper of first refusal over the stake, and is taking the dispute to arbitration on the Worldwide Chamber of Commerce in Paris.
Shell Plc and BP Plc, in the meantime, at the moment are switching extra of their funding {dollars} again towards oil and gasoline beneath new CEOs after their shares slumped following a pivot towards renewables.
The European supermajors’ struggles display the perils of changing excessive, regular money flows from fossil fuels with low-margin renewables, based on Greg Buckley, a portfolio supervisor at Adams Funds who helps handle about $3.5 billion together with Exxon shares.
“ESG was widespread however I feel that return on capital is extra widespread on the finish of the day,” he stated. Shell and BP “came upon the onerous manner.”
The shift away from ESG terminology is a recognition that the power transition shall be complicated and will not unfold the identical manner in each a part of the globe, Dan Yergin, the vice chairman of S&P World, which organizes the CERAWeek convention, stated in an interview. Conflicts around the globe, together with within the Center East and Ukraine, have underscored the necessity for dependable power provide, whereas buyers stay centered on returns, he stated.
“The power firms have demonstrated a self-discipline of their capital funding and have been aware of buyers,” Yergin stated. “You possibly can see that of their spending and that is refurbished the social contract between the businesses and buyers.”
Woods can also be studying from his personal expertise with activist shareholders. In January, the corporate filed a lawsuit towards US and Dutch local weather buyers who purchase inventory to push for decrease emissions. The method by which they get votes on the poll at firm conferences “has turn out to be ripe for abuse by activists with minimal shares and no real interest in rising long-term shareholder worth,” Exxon stated within the swimsuit.
Woods can also be being extra vocal about his views on a lower-carbon future. “The soiled secret no one talks about is how a lot all that is going to price and who’s keen to pay for it,” he stated in a current Fortune podcast. The world “waited too lengthy” to think about all of the options wanted to cut back emissions.
The feedback invoked ire from environmentalists.
“It’s an infuriating little bit of rhetoric, particularly from Exxon as a result of they’re probably the most related to the hassle to gradual progress on local weather change,” stated Andrew Logan, oil and gasoline senior director at CERES, a coalition of environmentally-minded buyers with $65 trillion beneath administration. “They’ve a protracted historical past of over-promising and beneath delivering on low carbon.”
Emily Mir, a spokeswoman for Exxon, pushed again at Logan’s feedback in a press release. The corporate has stated it’s pursuing greater than $20 billion in lower-emission investments from 2022 via 2027, along with its $4.9 billion acquisition of Denbury Inc., a deal that gave the oil large the biggest community of carbon dioxide pipelines within the US. These pipes shall be key to capturing carbon from closely polluting services like refineries and chemical vegetation.
“Info that don’t align with ill-informed prejudice are sometimes infuriating,” Mir stated. “That doesn’t make them fallacious. Somebody wants to inform the reality about what it’s going to take to get to a net-zero future.”
In November, Woods tried to flip the script on a slogan from the long-running “ExxonKnew” environmental marketing campaign, which claims that firm executives downplayed warnings from their very own scientists for the reason that Seventies that carbon dioxide causes local weather change. Exxon has denied intentionally deceptive the general public on international warming.
“We’ve acquired the instruments, the abilities, the dimensions — and the mental and monetary assets — to bend the curve on emissions,” he stated on the APEC CEO Summit 2023 in San Francisco. “That’s what Exxon Mobil is aware of.”
However the power transition nonetheless looms giant. Fears that oil demand will peak as quickly as 2030 have led buyers to low cost the flexibility of Exxon and its friends to maintain dividends and buybacks because the transition takes maintain. The S&P 500 is now dominated by tech shares, whose earnings are seen as extra resilient for many years into the long run.
Even after its rally over the previous few years, Exxon is just the S&P 500’s seventeenth largest firm, buying and selling at 12.2 instances earnings, 42% beneath the index’s common. Power shares make up lower than 4% of the index regardless of the US changing into the world’s greatest oil producer.
“Exxon and the trade has but to make a case of how they may generate money in a carbon-constrained future,” Logan stated.
—With help from Naureen S Malik.
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