Big Oil’s bid to lure back investors with cash could ultimately fail

Published

3 years ago

August 18, 2021

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ExxonMobil Corp. and Saudi Basic Industries Corp. (Sabic) Gulf Coast Growth Ventures petrochemical complex under construction in Gregory, Texas, U.S., on Wednesday, July 28, 2021.

Eddie Seal | Bloomberg | Getty Images

LONDON — The world’s largest oil and gas majors are seeking to lure back investors by returning more cash to shareholders. Market participants, particularly those looking to the long term, remain highly skeptical.

It comes at a time when oil and gas companies are raking in their highest profits since the onset of the coronavirus pandemic amid a sustained period of stronger commodity prices.

A robust showing in the three months through June built on better-than-expected first-quarter earnings and lent further support to the industry’s efforts to pay down debt and reward investors.

In the U.S., ExxonMobil said late last month that it would back shareholder returns through its dividend and Chevron announced it would resume share buybacks at an annual rate of between $2 billion to $3 billion.

In Europe, meanwhile, the U.K.’s BP, France’s TotalEnergies, Norway’s Equinor, Italy’s Eni and Anglo-Dutch oil giant Royal Dutch Shell all announced share buyback programs or increased dividend payouts — or both. It reflects a broader industry trend of energy majors seeking to reassure investors that they have gained a more stable footing amid the ongoing Covid-19 crisis.

Share buybacks are designed to boost the firm’s stock price, benefiting shareholders. Dividend payments, meanwhile, reflect a token reward to shareholders for their investment. Both are options available to a company seeking to reward investors.

These investments are likely to become stranded assets, and investors don’t want to be left holding the bag.

Kathy Hipple

Finance professor at Bard College

Ahead of the second-quarter results, energy analysts had warned that Big Oil still faced a host of uncertainties and challenges. Some of these include the remarkable success of shareholder activism in recent months, a “tremendous degree” of ongoing investor skepticism and intensifying pressure to massively reduce fossil fuel use.

“Day traders may reap short-term profits, but serious long-term investors have concluded that the old energy of the past — oil and gas extraction, is just that — old, with a sell-by date that is moving closer by the day,” Kathy Hipple, finance professor at Bard College in New York, told CNBC via email.

“Once institutional investors determine that demand has peaked — which likely has already happened — they will abandon the sector permanently,” she added. “Many already have, based on the stock performance of the sector over the past several years.”

IPCC report a ‘death knell’ for fossil fuels

The energy sector, alongside financials, is one of this year’s top performers on the S&P 500, up almost 30% year-to-date. Yet, share prices of many oil majors continue to trail the earnings outlook considerably.

In the U.K., for instance, BP has seen its stock price climb nearly 20% so far this year, but the oil and gas giant recorded a collapse of more than 47% in 2020. BP has previously described 2020 as “a year like no other” due to the impact of the Covid-19 crisis on global energy.

Oil prices have since rebounded to near $70 a barrel and all three of the world’s main forecasting agencies — OPEC, the IEA and the U.S. Energy Information Administration — expect a demand-led recovery to pick up speed through to 2022.

Hipple said that savvy long-term investors would shy away from oil and gas majors “unless and until” they fully acknowledge the climate crisis. “These investors understand that the oil majors are still investing tens of billions in unnecessary oil and gas infrastructure, ignoring the IEA findings that no additional infrastructure is possible to meet a 1.5 [degrees Celsius] scenario,” Hipple said, referring to a critically important target of the Paris Agreement.

“These investments are likely to become stranded assets, and investors don’t want to be left holding the bag.”

Last week, the world’s leading climate scientists delivered their starkest warning yet about the deepening climate emergency. The Intergovernmental Panel on Climate Change’s landmark report warned a key temperature limit of 1.5 degrees Celsius could be broken in just over a decade in the absence of immediate, rapid and large-scale reductions in greenhouse gas emissions.

U.N. Secretary-General, António Guterres, described the report’s findings as a “code red for humanity,” and said it “must sound a death knell” for coal, oil and gas.

Energy majors are typically still overwhelmingly reliant on oil and gas revenues for their earnings — a concept that is irreconcilable to the demands of the climate emergency.

“We frankly just don’t think these are very good businesses,” David Moss, head of European equities at BMO Global Asset Management, told CNBC’s “Street Signs Europe” on Friday.

European energy majors are currently generating “very strong” cash flow following a sustained rebound in oil prices, Moss said, but noted that many are choosing to keep spending relatively tight rather than invest in future production projects.

“With the oil companies, we still just don’t think they represent good long-term businesses,” Moss said. “They don’t generate consistent returns on capital or cash flow, albeit at the moment they look to be in a pretty good place.”

Not everyone is as downbeat on the outlook for the oil and gas industry, however.

Rohan Reddy, analyst at Global X, a New York-based provider of exchange-traded funds, says there are currently a number of positive signs for energy majors, citing rising stock prices, an upswing in second-quarter earnings and increased shareholder distributions.

“Right now, the energy sector is the best performing one within the S&P 500 and many European markets, and even though some of the big majors like BP and Shell have lagged the broader energy sector, we think right now that’s just due to hesitancy around the delta [Covid] variant,” Reddy told CNBC on Aug. 11.

“We think there is going to be a lot more investors starting to pile into to some of those big energy names.”

More Cybertruck delays, GM and Hyundai break records, and a new electric classic

Published

5 hours ago

July 2, 2024

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More Cybertruck delays, GM and Hyundai break records, and a new electric classic

On today’s episode of Quick Charge, Tesla is delaying Cybertruck deliveries, 3rd time’s a charm for FSD transfers, EV sales are up all over, big trucks go far, and a classic electric Porsche.

We’ve got lots of Tesla news to get through today – some good, some bad, but all very much “on brand” for the electric carmaker we’ve come to know in recent years. Meanwhile, GM, Hyundai, and Kia and setting EV sales records, America’s big truck companies break ground on a new battery factory, Volvo clocks 50,000,0000 miles on its electric semis, and a classic electric Porsche 911.

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Environment

China is building a mammoth 8 GW solar farm

Published

5 hours ago

July 2, 2024

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China is building a mammoth 8 GW solar farm

China 8 GW solar farm — https://unsplash.com/photos/solar-panels-on-green-field-513dBrMJ_5w

State-owned power company China Three Gorges Renewables Group will build an 8 GW solar farm as part of a nearly $11 billion integrated energy project.

To put the sheer size of the 8 GW solar farm in perspective, the three largest solar farms in the world by capacity are China’s Ningxia Tenggeli and Golmud Wutumeiren solar farms, with a capacity of 3 MW each, and a 3.5-GW solar farm outside Urumqi, Xinjiang’s capital.

In addition to the massive solar farm, the $10.99 billion project will also consist of 4 GW of wind, 5 GWh of energy storage capacity, 200 MW of solar thermal, and (disappointingly) 4 GW of coal-fired power. It will be sited in Ordos, in northern China’s Inner Mongolia region, the Shanghai-listed company said in a stock filing.

China Three Gorges says that the enormous integrated energy site’s power will be dispatched to the Beijing-Tianjin-Hebei cluster in northern China via an ultra-high voltage power transmission line.

The project will break ground in September and is expected to come online by June 2027.

China Three Gorges Renewables will take a 56% stake, and Inner Mongolia Energy Group will control 44%.

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Environment

Hispano Suiza will do a hill climb and show off its new 1,114 hp Carmen Sagrera at Goodwood

Published

6 hours ago

July 2, 2024

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Hispano Suiza will do a hill climb and show off its new 1,114 hp Carmen Sagrera at Goodwood

Boutique electric hypercar developer Hispano Suiza announced it would return to the Goodwood Festival of Speed this month to showcase two of its latest vehicles. One on display will be its newest model, the Carmen Sagrera, which packs four motors that combine for 1,114 horsepower.

Hispano Suiza is a boutique automaker in Spain with well over a century of experience. Founded in 1904, the brand established a prominent reputation by producing luxury cars, aircraft engines, trucks, and weapons throughout the early to mid-1900s.

The brand has been revived in recent years with a keen focus on all-electric hypercars that deliver one-of-a-kind performance. Hispano Suiza’s venture into bespoke BEVs began in 2019 with the debut of the Carmen – a truly unique model of which only 24 examples were assembled, and no two are exactly alike.

As an encore, Hispano Suiza launched the even more exclusive Carmen Boulogne. Only five were built, and one was delivered to a customer in the US in 2023. It currently sits as one of the most expensive BEVs on the planet.

To complete the trifecta, Hispano Suiza teased a third hypercar called the Carmen Sagrera this past February as a driveable nod to its 120-year history in automotive design.

We only caught a glimpse of its massive spoiler at the time but got the full picture in June when the Spanish automaker officially debuted it to the public in Barcelona. Later this month, Hispano Suiza intends to debut the Carmen Sagrera in the UK for the first time during the annual Goodwood Festival of speed.

It is there that it also intends to do a famous hill climb in another one of its all-electric hypercars.

Hispano Suiza to compete (and show off) at Goodwood

According to news from Hispano Suiza today, it will return to the Goodwood Festival of Speed and bring along not one but two all-electric hypercars. The first will be the previously mentioned Carmen Sagrera, which will be presented to the media and authorities in the UK for the first time, including The Duke of Richmond, who founded the annual Goodwood event.

The new all-electric hypercar, piloted by former Formula 1 driver Luis Pérez-Sala, will pull out onto the stage of Hispano Suiza’s dedicated stand. The public will be able to see it up close and take advantage of a pre-sale of Hispano Suiza’s new Capsule Collection of branded merchandise.

Those hoping to see the Carmen Sagrera in action as Goodwood may be disappointed, as it will only be on display. However, the automaker shared that it intends to do a hill climb with Carmen Boulogne, which is a nice consolation.

This year’s Goodwood Festival of Speed will occur July 11-14. If you’re there, be sure to check out the new Carmen Sagrera in person and report back.

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