Last year proved to be a watershed moment for oil and gas companies in the global transition to clean energy, with Big Oil facing a series of battles in boardrooms and courtrooms between the hands of extremist climate activists. The largest publicly traded oil company in the world, Exxon Mobil (NYSE: XOM), lost three seats on the board to Engine No. 1, an activist hedge, in a stunning proxy campaign. Engine #1 demanded that Exxon must reduce the production of fossil fuels to position the company for long-term success. “What we’re saying is: plan a world where maybe the world doesn’t need your barrels,“, Charlie Penner, leader of the No. 1 engine, told the Financial Times. The No. 1 engine scored a stunning victory thanks to the support of BlackRock Inc. (NYSE:BLK), Avant-garde and State Street who all voted against Exxon management.
Next comes his near peer, Chevron Corporation.(NYSE: CVX), with no less than 61% of Chevron shareholders vote to further reduce emissions at the company’s annual investor meeting a week ago and pushing back against the company’s board which had urged shareholders to reject it.
Finally, a A Dutch court ordered SA Shell (NYSE: SHEL) to cut its greenhouse gas emissions harder and faster than it had previously expected. Never mind the fact that Shell had already committed to reducing GHG emissions by 20% by 2030 and to net zero by 2050. The court in The Hague determined that was not enough and demanded a 45% reduction by 2030 from 2019 levels. . The past two years have been particularly difficult for Shell shareholders after the company announced a significant drop in the dividend the quarterly dividend dropping from 47 cents to 16 cents, the first dividend cut since World War I. Meanwhile, the company’s debt had ballooned massively, from $1 billion in 2005 to $73 billion in 2020.
Luckily for these oil and gas supermajors, investor sentiment has once again shifted in their favor.
changing feeling
In May, Exxon scored a major victory after its shareholders supported the company’s energy transition strategy at the annual general meeting. Only 28% of participants supported a resolution tabled by the follow this a group of activists calling for faster action to fight climate change; a proposal calling for a report on low-carbon business planning received just 10.5% support while a report on plastics production garnered a 37% favorable vote.
Related: Oil prices rebound as sentiment changes
Following in the footsteps of its larger counterpart, in June Chevron shareholders voted against a resolution asking the company to adopt targets for reducing greenhouse gas emissions, indicating its support for the measures the company has already taken to combat climate change.
Only 33% of shareholders voted in favor of the proposal, according to preliminary figures disclosed by the company, a sharp turnaround from last year when 61% of shareholders voted in favor of a similar proposal.
It is clear that ESG and climate activism are now taking a back seat amid the global energy crisis. Encouraged by last year’s victories, including rules that made it easier to put public policy issues on proxy ballots, a Conference Board analysis of data provided by Esgauge found that climate activists submitted 389 environmental and social proposals to member companies of the Russell 3000 index so far this year. However, the share of support for environmental proposals has fallen from 37% in 2021 to 33% this year, reflecting a growing aversion among asset managers to tying managers’ hands on climate-related issues. Russia’s invasion of Ukraine has also forced investors and companies to think more about energy security.
This is also why European oil and gas majors that doubled down on the ESG are underperforming their US counterparts.
Over the past 12 months, shares of Exxon Mobil and Chevron have returned 84.8% and 60.4% respectively, significantly better than Shell’s 33.9% and Shell’s 35.9% returns. BP over the period. Shell and BP have doubled their investments in clean energy in recent years and made no major oil or gas discoveries. On the other hand, Exxon continued its exploits, particularly in South America. The company recently announced that it has made two other discoveries on the Sailfin-1 and Yarrow-1 wells on the Stabroek block offshore Guyana, bringing discoveries on the block to more than 30 since 2015.
Exxon disclosed that the Sailfin-1 well was drilled in 4,616 feet of water and encountered 312 feet of hydrocarbon-bearing sandstone, while the Yarrow-1 well was drilled in 3,560 feet of water and encountered 75 feet of sandstone containing hydrocarbons.
Exxon claims to have accelerated development and production offshore Guyana at a rate that “far exceeds the industry average”, Exxon’s two approved offshore projects in Guyana, Liza Phase 1 and Liza Phase 2, are now producing above nameplate capacity and have already averaged nearly 360,000 barrels/day of oil. The supermajor expects Guyana’s total production to exceed one million barrels per day by the end of this decade. With around 11 billion barrels discovered to date, Guyana is home to one of the biggest oil discoveries of the past decade.
Exxon’s two approved offshore projects in Guyana, Liza Phase 1 and Liza Phase 2, are now producing above nameplate capacity and have already averaged nearly 360,000 bpd of oil. The supermajor expects Guyana’s total production reach 800,000 barrels per day by 2025 and cross one million barrels per day by the end of this decade.
In the final analysis, it looks like Shell and BP’s ESG strategy is no longer a winning formula for fossil fuel companies with shareholders rewarding companies like Exxon and Chevron that remain focused on their legacy businesses.
By Alex Kimani for Oilprice.com
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