An Exxon Mobil refinery in Altona North, Victoria, Australia. Exxon says it can fight climate change while still being a large oil and gas producer.
James Bugg/Bloomberg
Exxon Mobil executives made their case on Wednesday for why they think they can fight climate change while still being one of the biggest oil and gas producers in the world.
So far, investors seem to be open to the argument –a positive sign for a company that has been under severe pressure from both environmentalists and investors.
Shares of Exxon (ticker: XOM) were up 1% in midday trading on Wednesday, a bit less than the energy sector but better than the S&P 500.
Exxon’s plan seems to be getting more positive attention — on Wall Street at least — than the plans from competitors like BP (BP) that have pledged more money to combat climate change. Exxon expects to spend $3 billion through 2025 on low-carbon projects, while BP expects to spend $3 billion to $4 billion annually by 2025.
BP and Royal Dutch Shell (RDS.A) are making big waves in solar and wind, while Exxon’s investments are in other areas where it thinks it has a competitive advantage — particularly carbon capture and sequestration, and hydrogen production. As its plans have become clearer in the past few months, Exxon stock has outperformed competitors. Last month, Exxon created a new business called Low Carbon Solutions that will hold these climate-friendlier initiatives.
The simple fact that Exxon started its 2021 investor day by talking about the climate was remarkable — among the first things CEO Darren Woods said was that Exxon plans to adhere to the Paris agreement, the global pact to reduce emissions.
“We are committed to playing a leading role in greenhouse gas reductions consistent with the goals of the Paris agreement, advancing technologies needed for lower emissions, and making the necessary investments to responsibly meet the continuing demand for energy and products essential to modern life,” Woods said.
It’s a significant rhetorical shift for a company that Greenpeace and others have accused of undermining efforts to combat climate change for decades. The company has denied those claims and was found not guilty in 2019 in a case brought by the New York Attorney General that alleged Exxon committed securities fraud by misleading investors about climate change. But Exxon has not spoken in as much detail as other big oil companies about its efforts until recently. Wednesday’s investor day marked a big change in that respect. It comes just two days after Exxon added activist investor Jeffrey Ubben and former Comcast executive Michael Angelakis to its board amid pressure from some shareholders.
Some shareholders still aren’t convinced Exxon has made enough changes. The Coalition United for a Responsible Exxon (CURE), a shareholder coalition with 145 members and $2.5 trillion in assets under management, said in a Wednesday release that “Exxon has taken what appears to be initial steps in the right direction,” but that the company “needs to commit to a deeper, long-term shift of its capital allocation strategies” and should work on getting to a net zero greenhouse gas target by 2050.
Exxon has been putting much of its green investments into carbon capture and sequestration, (CCS), which involves capturing carbon emissions and injecting it underground, where it is expected to stay permanently. The company says it has an equity stake in one-fifth of carbon capture projects around the world and believes it’s a $2 trillion addressable market.
Exxon has also been investing in hydrogen technology, which it says is a $1 trillion market.
How exactly Exxon will commercialize these businesses is still not entirely clear.
“We anticipate that, much along the same lines as other major integrated oil companies and service providers, Exxon will look to use an incubator-type approach to invest in and grow promising technologies that help move CCS toward commercialization while additionally focusing on playing an increased role in the growing hydrogen economy,” wrote Truist analyst Neal Dingmann.
To be sure, Exxon still plans to invest heavily in oil and gas development. The company says that the Intergovernmental Panel on Climate Change (IPCC) still sees oil and gas making up 48% of energy production in 2040 under a scenario where temperature increases are kept below 2 degrees Celsius. That’s down from 55% in 2019, but not significantly. To get there, Exxon projects the world will still need to make $12 trillion worth of investments in oil and gas by 2040.
Exxon says it has better opportunities in oil and gas production than it has in at least two decades. The company says that 90% of its oil and gas investments can achieve returns of 10% even if oil falls to $35 per barrel.
That said, it expects to hold production flat for the next few years. Its capital expenses will be in a range of $16 billion to $19 billion this year, and then between $20 billion and $25 billion through 2025. The company’s ambitions have been significantly curtailed over the past year. Before the pandemic, Exxon had expected to spend $33 billion on capital expenses in 2020.
Write to Avi Salzman at [email protected]
