The annual shareholders' meetings of ExxonMobil, Chevron and BP, all held on May 27, looked like an annual check-up at a burning clinic. Covid-19 caused the deepest collapse in demand for oil giant products in history. In April, Royal Dutch Shell, an Anglo-Dutch company, cut its dividends for the first time since World War II. On May 1, ExxonMobil recorded its first loss since the mega merger that formed the group in 1999.
Even before pandemic investors were looking elsewhere for less risk and higher returns. Energy was the sector with the worst performance in the S&P 500 index in four of the last six years. However, supermajors argue that, for all these reasons, their prospects are not bad.
They have half a point. Many of them have become more resilient since the last crisis, in 2014, pursuing more profitable projects and reducing costs. The price of oil needed to cover capital expenditures and dividends for the seven largest – ExxonMobil, Shell, Chevron, Total, BP, Equinor and Eni – is about half what it was in 2013, calculates Goldman Sachs, an investment bank (see graph).
More oil companies are also preparing for a low carbon future. In December, Spain's Repsol committed to achieving zero net emissions from its operations and the sale of its products by 2050. Since then, BP, Shell, Eni and Total have announced their own commitments.
In addition, as smaller oil companies withdraw from the virus, especially in shale basins in the United States, larger companies can acquire their assets. The cuts in supermajors' spending could slow their oil production. But that is only a problem if you think there is value in production growth, says Michele Della Vegna, from Goldman Sachs. If overgrowth is the problem, he says, cuts can be part of the solution.
There are two problems. The equilibrium price for some companies, although lower than it was, remains high. ExxonMobil is at $ 70, double the oil today. And it is not clear how quickly – or if – supermajors should move away from oil investments. ExxonMobil and Chevron, America's largest oil companies, think not. Nor has it set a goal to reduce emissions from the sale of its products. On May 27, ExxonMobil shareholders voted against dividing the roles of president and chief executive. Green investors hoped that an independent president could spur change.
European supermajors look like Birkenstock arborists in comparison. Still, his promises are loose. Italy's Eni said in February that its oil and gas production would peak at 2025, but left room for a "flexible decline" in oil thereafter. On May 5, Total promised to reach net zero – but only for products sold in Europe. Shareholders will consider a resolution for broader targets on May 29. BP, under pressure from activists, is working to explain how it can meet climate targets.
Businesses have a way to go. Norway's Equinor devoted about 8% of capital expenditures last year to renewable energy; Shell's number was 2%. Meanwhile, a new type of rival is emerging. For $ 68 billion, the market value of Iberdrola, a Spanish company that develops wind and solar farms, has surpassed those of Eni and Equinor and is chasing that of BP. ■
This article appeared in the Business section of the print edition, under the title "Don't worry, everything is under control"
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