Giant oil corporation Royal Dutch Shell is considering shedding some or all of its assets in the Permian Basin, Reuters reported on Sunday, underscoring the pressure Shell and its competitors are under to focus on transitioning to a carbon-neutral economy and combat climate change in the coming decades.
The Netherlands-based company has some 260,000 acres in the southern US oil field, the largest in the country, that could be worth as much as $10 billion, Reuters reported, citing sources familiar with the matter. Shell declined to comment to Reuters.
Shell produces some 160,000 to 170,000 barrels of oil per day in the Permian Basin, upstream director Wael Sawan said on May 25 during a meeting with analysts. Sawan has said that over the last year, the company has lowered its Permian production by some 20,000 barrels a day in an effort to preserve cash.
Shareholders and activists have intensified calls on oil companies like Shell, Exxon Mobil, and Chevron to reduce their carbon emissions in recent years. They have grown louder, and more successful, this year.
Investors’ efforts to push for change reached a landmark moment this spring when Exxon shareholders elected to install three new directors on the oil giant’s board in a bid to accelerate its shift toward cleaner energies.
Environmental- and social-related shareholder proposals have seen record support this year, according to a report last week by RBC Capital Markets analysts Sara Mahaffy and Lori Calvasina. Just shy of one-quarter of such proposals at US companies have received majority support, up from just 5% in 2019.
Shell earlier this year outlined a plan that included targets like cutting the carbon intensity of the energy products it sells by at least 6% by 2023 and 20% by 2030, compared to 2016 levels.
But its targets were challenged last month when a Dutch court ordered Shell to cut its carbon emissions by an accelerated net 45% by 2030 from 2019 levels. The company called that ruling “disappointing,” and said it will focus on its efforts to reduce its carbon footprint.
Shell, led by Chief Executive Chief Executive Ben van Beurden, has also said it believes its annual oil production peaked in 2019 and will likely fall by 1% to 2% a year until 2030.
“The Permian indeed is part of that core position simply because we do see the running room in there, and we do actually believe it is a high-quality position, plus a high-quality operation that we have there,” Van Beurden told an analyst during a call in February, referring to the company’s strategy in the oil field. “And therefore, we will continue to invest in it until, indeed, it doesn’t make sense anymore.”
Activist investor Engine No. 1 scored a historic win on Wednesday after it won two board seats on Exxon Mobil’s board of directors.
A bitter proxy fight between the major oil company and the small activist investor circled around green energy initiatives, executive pay, and the diversification of Exxon’s fossil fuel business.
The win took many by surprise given that Engine No. 1 is a first time activist investor with just a 0.02% stake in Exxon. Typical activist investor campaigns have been led by well-known Wall Street figures who buy a position upwards 10% in the targeted company.
The win by Engine No. 1 highlighted the growing appetite among investors for corporations to tackle climate change and green energy initiatives head-on. Many top institutional investors view addressing the climate as essential for a successful long-term business, including BlackRock founder and CEO Larry Fink.
Exxon was staunchly against Engine No. 1’s two board nominees, Gregory Goff and Kaisa Hietala. Exxon CEO Darren Woods refused to meet with the nominees and told shareholders that voting for them would “derail our progress and jeopardize your dividend,” according to Bloomberg.
Just two-days before today’s annual shareholder meeting, the company pledged that it would add two new directors to its board to counter-balance the potential addition of Goff and Hietala.
Other fossil-fuel companies have seen a revolt among shareholders in vote proposals. Chevron, DuPont de Nemours, and ConocoPhillips have all seen their shareholders issue rebukes to management by voting in favor of various proposals centered on climate change, Bloomberg highlighted.
Two board seats on Exxon remain undecided, and one or both of them could still potentially be awarded to Engine No. 1. Whether Woods will take the advice of the new board members and pivot towards a greener future remains to be seen.
I’m hosting a live energy roundtable on Monday with execs from Shell, Facebook, and other big firms, you know, in case CERAWeek wasn’t enough.
It should be great! We’ll discuss whether oil giants still deserve their bad reputations, how companies can generate returns as they pivot to renewables, and what tech breakthroughs we need to clean up the grid. And it’s just 30 minutes. You can sign up here.
Anyway, this week was another week.
We got a few more details on Exxon’s strategy during the company’s investor day Wednesday (though not much of what it announced is new). And the fallout from the Texas storm – now expected to be the most expensive weather event in the state’s history – continues to spread.
Ken Jack/Getty Images
Exxon is chasing what it calls a $2 trillion carbon-capture opportunity
Once skeptical of betting big on carbon-capture technology, Exxon says it’s ready to go all-in.
During an investor presentation Wednesday, Darren Woods said advances in the technology and a “growing market need” have created a unique opportunity for Exxon.
The real change is that Exxon is now organizing all of its carbon capture projects – there are 20 in the pipeline, many of which were already under construction before the recent announcements – in a new business called Low Carbon Solutions.
Wall Street is happy: After freefalling in 2020, Exxon’s stock is up almost 50% from the start of the year, and many of the top Wall Street banks favor the company.
“XOM’s newly formed Low Carbon Solutions business helps mitigate energy transition uncertainty while also offering new attractive growth options for the company,” Morgan Stanley analysts wrote in a note this week.
Wall Street firms cite not just Exxon’s strategy to cut emissions but pared back capital spending and a low breakeven price for oil.
Yet challenges remain: Some investors say Exxon’s plan to cut emissions and change up its board doesn’t go far enough. Experts have also raised questions about the economics of carbon capture technology.
“The business as it stands today is underpinned by government support, and this can be shaky over the long term,” Peter McNally, an energy expert at Third Bridge Group, said in a comment this week.
Executives were not forthright with employees about the toll the downturn would take on its workforce and, at times, came across as insensitive when they did communicate about job cuts, current and former employees said.
In our story this week, we lay out the company’s business model, why it failed, and what happens next.
Michael Noble Jr./San Francisco Chronicle via Getty Images
Meanwhile, the Texas disaster is set to propel Sunrun to new heights
Following the widespread blackouts in California, back in 2019, the solar giant Sunrun – which sells rooftop panels and home batteries – began shifting its pitch to customers: Go solar not just to access clean energy but to power through blackouts.
The company even adopted the slogan “Power through.”
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 Mobil, the largest US oil company, announced on Monday that it was forming a new business focused on low-emissions technologies including carbon capture. The announcement follows reports that investors with more than $2 trillion in assets are pressing the company to move more quickly to address climate change.
The Irving, Texas-based company said it plans to spend $3 billion through 2025 on what it calls “lower-emission technologies.” That’s $600 million a year, or 3% to 4% of the firm’s project budget for 2021.
Part of that will go toward 20 new carbon-capture projects that Exxon also announced Monday.
“With our demonstrated leadership in carbon capture and emissions reduction technologies, ExxonMobil is committed to meeting the demand for affordable energy while reducing emissions and managing the risks of climate change,” Exxon CEO Darren Woods said in a statement.
Carbon capture involves sucking greenhouse gas emissions out of ambient air or from point sources, such as steelmaking factories. It’s among a suite of technologies researchers say we’ll need to achieve the goals of the Paris Agreement, an international accord aimed at keeping global warming in check.
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. As Exxon advances its carbon capture projects it will be able to lower the carbon emissions associated with each barrel of oil – something known as “carbon intensity.”
In December, the company committed to reducing the carbon intensity of emissions stemming from oil exploration and production by as much as 20% by 2025.
Other major oil companies including BP and Shell have taken more aggressive approaches to lower their emissions over the last year, such as by investing in clean energy sources like wind and solar. BP, for one, said it will spend $4 billion to $5 billion a year by 2025 on low-carbon energy.
Exxon is scheduled to report financial results on Tuesday morning.
Investors call on Exxon to address its climate impact
The pressure on Exxon to do more to address climate change has been building over the past few months.
Last year, the activist firm Engine No. 1, with the support of CalSTRS, began a campaign to elect four new board members, push the company to invest in cleaner sources of energy, and preserve its dividend. Other investors including BNP Paribas, through its asset management division, are pressing Exxon to be more transparent about its lobbying efforts as they pertain to climate change.
These efforts are snowballing: Reuters reported last month that more than 135 investors who manage more than $2 trillion altogether are forming a coalition to force the company to make similar changes.
It’s not clear whether those investors will be satisfied by Monday’s announcement.
Exxon’s new business will focus on carbon capture
Exxon has been developing and using carbon-capture technologies for years.
The new business, dubbed Low Carbon Solutions, marks a major expansion of that effort and it includes new carbon capture projects located in the US, Europe, the Middle East, and Asia. Exxon also suggested it may expand its work with hydrogen.
“ExxonMobil Low Carbon Solutions will also leverage ExxonMobil’s significant experience in the production of hydrogen which, when coupled with CCS, is likely to play a critical role in a lower-carbon energy system,” Exxon said in the press release.
The Low Carbon Solutions business will be spearheaded by Joe Blommaert, who was formerly the SVP for global operations in Exxon’s chemical business. The company also elected him as VP, a coveted title shared by just 12 other executives.
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.
Behind those decisions is what some employees have referred to as the “God Pod” – Exxon’s executive wing at the company’s headquarters. The name is a reference to the top floors of the office that the group occupies, and it’s been used to describe the company’s leadership style.
“The executive wing of Exxon Mobil’s headquarters outside Dallas is nicknamed the God Pod because orders given by executives there can sometimes be as sharp as thunderbolts,” longtime New York Times energy reporter Clifford Krauss wrote in 2017.
At the top is CEO Darren Woods, who’s led the company since 2017, along with three other members of Exxon’s management committee: Neil Chapman, Andrew Swiger, and Jack Williams. Together, they have an average tenure of nearly 35 years. They oversee Exxon’s second tier of executives including vice presidents and division leads.
All four members of the management committee are white men. 18% of Exxon’s US executives are minorities, as of 2019, the company says on its website.
It’s a new year, but many of 2020’s challenges linger: The layoffs sunk morale, oil markets are still stunted, and some investors are pressuring the company to address the risks associated with climate change, as many of its peers have done.
We lay out the executives who will navigate those challenges in an org chart, available exclusively to Insider subscribers. It includes 138 of the firm’s top employees.