Wednesday was tough for the world’s biggest oil companies.
First, a court in the Netherlands ruled that Anglo-Dutch oil giant Shell has to rapidly increase the rate at which it cuts its carbon emissions. It was a landmark legal case that could lead to similar rulings.
Then, shareholders went against ExxonMobil’s management and backed an activist investor group to elect at least two new board members. The group said the company’s continued focus on fossil fuels means it faces “existential risk.”
Meanwhile, shareholders in Chevron voted for a resolution calling for the US’s second-biggest oil company to substantially reduce its emissions from the products it sells.
Total is the next company to face shareholder pressure, with voting underway on Thursday on the French oil major’s climate policy. Greenpeace France and other groups are urging shareholders to vote against the blueprint and have criticized its plans for new oil projects.
“Seismic votes at Exxon and Chevron send a clear message: shareholders can force real action on climate, if they have the courage of their convictions,” said Lucie Pinson, founder and executive director of campaign group Reclaim Finance.
Investors reacted cautiously to the announcements, with Shell, ExxonMobil, Chevron and Total all down around 1 to 2% by early afternoon in Europe on Thursday.
But executives at the oil majors were given a jolt. Darren Woods, chairman and chief executive of Exxon, said: “We heard from shareholders today about their desire to further these efforts, and we are well positioned to respond.”
All the more concerning for Exxon was that huge institutional investors such as BlackRock voted with small hedge fund Engine No. 1, which put forward new directors. BlackRock said: “Exxon’s energy transition strategy falls short of what is necessary to ensure the company’s financial resilience in a low carbon economy.”
BlackRock cited the International Energy Agency’s 2050 net zero report, which said earlier in May all new fossil fuel projects must stop if the world is to limit global warming to 1.5C (2.7F). Campaigners said the report appeared to have encouraged shareholders to step up their focus on climate issues.
Yet there were signs that the oil majors will not let campaigners and activists have it all their way. Shell said it intended to appeal the “disappointing” Dutch court ruling that said the oil company must cut emissions by 45% from 2019 levels by 2030.
“Urgent action is needed on climate change which is why we have accelerated our efforts to become a net-zero emissions energy company by 2050, in step with society,” a Shell spokesperson said.
Total has also committed to being carbon neutral by 2050 or sooner. But activists say that, although the European oil majors have made stronger commitments than their US peers, they still need to be doing more.
Reclaim Finance said the big oil firms must halt all new fossil fuel projects, in line with the IEA’s recommendations.
Warren Buffett’s Berkshire Hathaway disclosed a new bet on Aon in a portfolio update on Monday. It also revealed that it took a knife to several positions and virtually eliminated its Wells Fargo stake last quarter.
The famed investor’s company bought 4.1 million shares of Aon, a British health insurer and pensions administrator, in the three months to March 31. It also boosted its Verizon stake by about 8% to 159 million shares – worth over $9 billion at the end of the period. Moreover, it ramped up its Kroger bet by over 50% to north of 50 million shares.
Buffett and his team trimmed several positions, which was expected given Berkshire’s recent earnings showed that it sold $3.9 billion of stock on a net basis last quarter. They slashed their Chevron stake, despite only establishing it last year, by just over half to 24 million shares worth $2.5 billion. They also reduced their pharmaceutical bets – AbbVie, Bristol Myers-Squibb, and Merck – as well as Liberty Global, Axalta, and StoneCo.
Notably, Berkshire cut its Wells Fargo stake from more than 50 million shares to fewer than 700,000. The bank had been one of Buffett’s biggest positions until last year.
The lack of purchases last quarter chimes with Buffett’s comments at Berkshire’s recent shareholder meeting. The investor said he was looking to invest about $80 billion of Berkshire’s roughly $140 billion cash hoard in stocks and businesses, but admitted he was struggling to find bargains in the current market.
Buffett cited the Federal Reserve’s continued efforts to pump liquidity into markets, which has boosted asset prices and fueled competition for acquisitions, as a key factor.
The famed investor’s company owned a 2.5% stake in the oil-and-gas group worth $4.1 billion at the end of December, it revealed in a regulatory filing last month. Chevron’s stock price has surged 29% since then as crude prices have rebounded, boosting the value of Berkshire’s stake to $5.3 billion.
Berkshire began buying Chevron shares in the third quarter of 2020. It secured regulatory permission to not include the stock in its 13-F portfolio update for that period, as it was still building the position.
The company purchased 44.3 million Chevron shares in the third quarter, and another 4.2 million shares last quarter, it disclosed in filings last month. The energy stock ranked among its 10 biggest holdings by market value at the end of 2020, Buffett said in his latest letter to shareholders.
Buffett’s decision to back Chevron is paying off so far, but it remains somewhat surprising. After all, Buffett expressed doubts about the oil sector’s prospects at Berkshire’s annual meeting last year, following his painful bet on Occidental Petroleum.
“If you’re an Oxy shareholder, or any shareholder in any oil-producing company, you’ll join me in having made a mistake so far in terms of where oil prices went,” he said. “Who knows where they go in the future?”
Buffett also stepped in to help Occidental beat out Chevron in a bidding war for Anadarko Petroleum in 2019. His subsequent bet on Chevron suggests there’s no bad blood left over from the clash.
Other investors anticipate that behavior and rush to take advantage by buying or selling before the Buffett faithful, making the process somewhat self-fulfilling.
Tesla CEO Elon Musk has showcased a similar ability in recent weeks, driving stocks and cryptocurrencies skyward with his tweets.
The “Buffett Bump” was on full display this week after Berkshire disclosed multibillion-dollar stakes in Verizon, Chevron, and Marsh & McLennan after markets closed on Tuesday. The telecoms titan’s stock price jumped 5% on Wednesday, while shares in the energy giant and the financial services group rose about 3%.
The rallies added about $19 billion in total to the three companies’ market capitalizations.
Similarly, there have been “Musk Moves” in numerous securities this year. The Tesla chief’s tweets about GameStop, Dogecoin, and Etsy helped to – at least temporarily – drive their prices higher.
Musk’s tweets about the encrypted-messaging app Signal and the techno song “Sandstorm” have been linked to run-ups in entirely unrelated securities.
Moreover, Tesla’s purchase of $1.5 billion of bitcoin this month has been a key catalyst in the digital coin’s latest rally. Musk’s endorsement was hailed as a milestone in mainstream acceptance of cryptocurrencies.
It’s clear that Buffett’s backing continues to translate into billion-dollar increases in companies’ market values. He has some competition from Musk, whose stamp of approval has a similar, albeit less precise and sustained, effect on markets too.
Save the date! We’re hosting a virtual roundtable about building a clean energy economy on the morning of March 8. More on that below.
It snowed a lot this week. My dog lost his mind. Now, like all good things, the snow has turned to brown slush.
Also this week, several top oil companies reported earnings, giving us a more complete picture of the financial fallout from the pandemic. There were no major surprises, but the negative numbers are big.
We’ll get to that, but first: A look at an early winner of the hydrogen boom.
When hydrogen gas inside the Hindenburg exploded in 1937, the era of airship travel came to an end. Now the very same gas is reentering the aviation industry. And this time it’s kicking off a new era – one of zero-carbon travel.
This week:I profiled ZeroAvia, an ambitious startup working on hydrogen-powered aircraft. It recently raised money from huge names including Amazon, Shell Ventures, and Bill Gates’ climate tech venture fund, Breakthrough Energy Ventures.
Hydrogen’s moment: Is right now. The gas is quickly building a reputation as a linchpin in the transition to cleaner energy, and investors are now looking for where to place their bets. Some aren’t having much luck.
“We look aggressively,” Vinod Khosla, founder of Khosla Ventures, told me last fall. “We haven’t found somebody with breakthrough technology. There’s a lot of incremental technologies there, but nobody has a real breakthrough. If you find one, have them call me.”
Investors we spoke to say hydrogen used for aviation, heavy-duty vehicles, and industrial processes, such as steelmaking, is most promising.
Justin Sullivan/Getty Images
Big losses for Big Oil
The results are in: Major oil companies, surprising no one, suffered steep financial losses in 2020.
One big number: $56 billion
That’s the combined full-year loss of five of the top companies including Exxon, Chevron, BP, Shell, and ConocoPhillips. Exxon and Shell topped the list.
Last year, these firms earned about that same amount, combined.
Only up to go? Probably, at least until demand for oil and gas begins a more permanent decline.
The price of oil is rising fast as demand notches up. Brent is trading at close to $60 a barrel, erasing year-over-year losses.
Companies spent 2020 lowering the cost of production, so they’re positioned to succeed even if oil prices don’t go much higher.
What to know: The unit, which Exxon launched after investors pressed the company to move faster to address climate change, will initially focus on carbon capture and storage.
No surprises here: Exxon has been developing carbon capture projects for a while now.
The technology is attractive to oil companies in part because it doesn’t require that they rewrite their business models and pump less crude from the ground.
How investors responded: They were nonplussed.
A coalition of investors with over $2.2 trillion in assets said Exxon’s plan to build out carbon capture capabilities isn’t credible, pointing to a carbon-capture project that the company delayed.
Activist investor Engine No. 1 had a similar reaction: It’s “poor long-term planning to rely almost exclusively on the idea that carbon capture will become scalable and affordable soon enough to allow for continued oil and gas production growth for decades to come under a Paris-compliant trajectory,” the group said.
But investors aren’t jumping ship: The company’s stock is up 10% this week and 20% since the start of the year.
What’s more: Exxon also announced a new board member this week – Tan Sri Wan Zulkiflee Wan Ariffin, former CEO of the Malaysian state energy company Petronas.
A board shake-up is another demand from activist investors.
Hedge fund DE Shaw had been in talks with Exxon about making changes to its board, Bloomberg reported ahead of the announcement. Engine No. 1 has also launched a campaign to elect four new directors.
On Thursday Bloomberg reported that the company is considering also appointing Jeff Ubben, who runs Inclusive Capital Partners, to the board.
Michael Brochstein/SOPA Images/LightRocket via Getty Images
5 things in energy politics
Jennifer Granholm’s nomination as Energy Secretary cleared a key Senate committee and now advances to the full Senate, where she is expected to be confirmed.
A new report by left-leaning groups Evergreen Action and Data for Progress reveals how Senate Democrats can clean up the electric grid by 2035, even with a razor-thin majority.
Senate Democrats reintroduced legislation for a $100 billion national “green bank.” It would make loans and investments in technologies aligned with Biden’s climate agenda, Greentech Media reported.
Agriculture Secretary nominee Tom Vilsack said that he plans to prioritize efforts to address climate change and food insecurity, during his confirmation hearing on Tuesday, Insider’s Ayelet Sheffey reports.
Senator Gary Peters, a Michigan Democrat who advocates for strong climate change policy, recently invested up to $15,000 in a power company that primarily burns fossil fuels, according to a stock purchase disclosure, Insider’s Dave Levinthal reports.
Save the date: Building a clean-energy economy
We’re hosting a virtual roundtable, as part of our Transformers series, on how to build a clean energy economy. Save the date!
When: March 8, at 10:00 am (NYC time)
Where: Online, of course. We’ll send out more information next week.
Who: The roundtable will feature Shell’s head of new energies, the founder of Form Energy, Facebook’s renewable energy lead, and Oliver Wyman’s head of energy.
That’s it! Have a great weekend.
Ps. This was a serious storm. Here’s what it looked like in Park Slope.
Exxon and Chevron discussed merging the oil companies last year, a move that would have likely created the second-largest oil company in the world, The Wall Street Journal reported Sunday.
The talks between Chevron CEO Mike Wirth and Exxon Mobil CEO Darren Woods took place in the early days of the coronavirus pandemic, which battered the oil sector, the Journal reported, citing a source familiar with the matter. The talks were preliminary and are not ongoing, though the two CEOs might resume discussions, the Journal said.
If the merger were to occur, it would likely make the ensuing firm the second-largest oil company in the world by market capitalization and production, the Journal said. Saudi Aramco is the world’s largest oil company.
A Chevron spokesperson did not comment on the Journal’s report, telling Insider “we do not comment on market rumors or speculation.” Exxon did not immediately respond to Insider’s request for comment.
The oil industry has been hit hard by the pandemic, with reduced travel drastically cutting demand for jet fuel, diesel, and gasoline. Oil prices have rebounded this year after a brutal spring 2020 in which US crude fell into negative territory for the first time.
Exxon, the largest US oil producer, has faced pressure from a number of events, including its ousting from the Dow Jones Industrial Average in August and a reported SEC investigation into allegations the company overvalued a key oil and gas property in Texas’ Permian Basin. It also posted losses in the first three quarters of 2020; fourth quarter results will be revealed on Tuesday.
Chevron has also been hammered by the decline in demand for crude oil. Late last year, the second-largest US oil producer took steps to reduce costs and streamline operations. It also asked employees worldwide to reapply for positions, Reuters reported. Last week the company reported a fourth quarter loss.
Exxon and Chevron have market capitalizations of $190 billion and $164 billion, respectively.
Last week, S&P Global Ratings put several big oil companies, including Chevron and Exxon, on notice that it could soon downgrade their credit ratings due to heightened concerns about climate change and a global push towards greener energy.
The agency – one of the three most influential ratings firms in the world – said it could ultimately downgrade the ratings of Chevron, Exxon, Shell and Total among others.
The Journal noted that the proposed merger between Chevron and ExxonMobil would bring back together two of the companies borne after John D. Rockefeller’s Standard Oil monopoly was broken up in 1911.