Oil giants’ setbacks turn BP from tortoise to hare
LONDON, May 27 (Reuters Breakingviews) - Bernard Looney must be feeling pretty smug. Since proudly unveiling his plan to pivot the UK oil group away from fossil fuels last September, the BP (BP.L) chief executive has watched the company’s share price underperform European and American rivals. Following the triple whammy that has hit the oil industry in little more than a week, that discount should disappear.
Right now, it’s not totally clear how Exxon Mobil’s (XOM.N) strategy will change as a result of activist investors installing at least two new directors on the company’s board on Wednesday. Nor is it certain whether a Dutch court’s ruling on the same day that Royal Dutch Shell (RDSa.L), must reduce its greenhouse gases by 45% by 2030 will apply only to the 116 million tonnes a year emitted in the course of the Anglo-Dutch group's production processes, or whether this will also extend to emissions from customers using its products. It’s also possible that the industry will interpret last week’s call from the International Energy Agency’s call that oil output needs to drop precipitously as a guideline rather than an imperative.
What is clear, though, is that the days of big oil groups being opaque about their plans to reduce emissions are over. Rather than setting piecemeal targets to cut greenhouse gases to zero in three decades, industry giants will have to incorporate all their customers’ emissions into their objectives. That’s an area U.S. groups such as Exxon and Chevron (CVX.N) have tended to avoid, and where Total (TOTF.PA) underwhelms. Oil companies will also have to commit to cutting emissions on an absolute basis by 2030, something Shell has so far swerved. This probably means following the lead set by Looney, who pledged to cut BP’s oil production by 40% by 2030.
What this shift means for valuations may not be instantly apparent. Oil investors have traditionally valued generous dividends. Exxon and Total shares yield around 6%, way above Shell and BP, which cut their payouts sharply last year. Chevron and Exxon’s enterprise values are also a higher multiple of EBITDA than those of their European rivals.
This was already starting to change, though. Over the last three months, BP shares are up 8%, while Total shares are flat and Shell’s have fallen slightly. The 8% rise in Exxon shares over the same period is partly the result of investors anticipating a successful activist would help shove the group towards renewable energy. Once a tortoise for oil industry investors, Looney is fast turning into a hare.
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- Several Total shareholders plan to demonstrate their concern that the French group is not doing enough to curb carbon emissions at its shareholder meeting on May 28, Reuters reported on May 27, as global oil and gas companies come under increasing environmental pressure.
- Total is seeking backing from shareholders for a motion on its environmental goals, which includes reaching carbon neutrality by 2050.
- But several French and international investors including Meeschaert Asset Management, PME, OFI, Ircantec, La Francaise, Sycomore and Actiam have said or confirmed to Reuters that they plan to vote against the motion or abstain.
- A Dutch court on May 26 ordered Royal Dutch Shell to reduce its greenhouse gas emissions by 45% by 2030 relative to 2019 levels, a much tougher target than the oil giant’s current goals.
- Nominees put forward by hedge fund activist Engine No. 1 won at least two seats on Exxon Mobil’s board of directors, according to preliminary results of a vote at a shareholder meeting on May 26.
- Total shares were down 0.8% at 38.10 euros as of 1245 GMT on May 27. BP shares were down 1.5% at 306 pence. Shell shares were down 2% at 1,289 pence.
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