Q2 Earnings: Exxon, Shell And BP Are Still Oil Companies

This year has seen a deluge of messaging centered on the narrative of the ‘energy transition’ and efforts by traditional oil and gas companies to meet this transition’s demands and remain going concerns into the future. Big Oil, this narrative contends, will have to move into Big Wind, Big Solar or Big Storage if it is to meet demands by activist investors and the climate change lobby to get to net zero emissions by a year certain, with the year 2050 being the most popular current pledge target.

Three major integrated companies, Shell, BP and ExxonMobil XOM , have been especially up front and public about their plans for going about meeting these demands in the current year. Shell recently announced the acquisition of a renewable energy retailer called Inspire Energy to boost its growing suite of green business ventures. Exxon has been aggressive in the carbon capture space, creating a whole new business unit assigned to pursue new ventures in the U.S. and around the globe. BP has been especially aggressive in the messaging about its growing array of green ventures, although its CEO, Bernard Looney, seems to alternate between trumpeting the company’s plans to transition into a new kind of company and boasting about BP’s oil and gas-related performance during earnings season.

All three companies have found themselves under tremendous pressure from investors and governments in the countries in which they are headquartered to move in this direction. Earlier this year, Shell received the added incentive of a Dutch court ruling that it must actually reduce its gross emissions and not just satisfy its net zero pledge via offsets, planting trees or other common means for reaching such goals.

All the green energy investments, PR messaging and net-zero pledging are not at all surprising. These Big Oil companies and others are under tremendous pressure to not just talk about getting to net zero by 2050 or 2040 or whatever distant year they pick, but to make significant investments and take concrete steps along the road to getting there. They all talk about doing those things very publicly, and the green-focused news media pays a lot of attention to it when they do, although that media segment likes to spin those announcements in a negative light.

Because of the adverse court decision, which the company has appealed, Shell at least for the moment finds itself in a unique position of having to find ways to progress towards absolute reductions in its emissions profile while continuing to engage in the oil-related business that makes it profitable. That motivation is likely why rumors persist that the company is in the process of soliciting bids related to its asset base in the prolific Permian Basin.

Bloomberg reported last week that companies like ConocoPhillips COP , Devon Energy DVN and Chevron CVX were among those taking hard looks at potentially acquiring those Permian assets, which could carry a price tag of $10 billion in the current price environment.

Both Exxon and BP have also pursued asset sales as part of meeting their own corporate net zero goals. BP sold all of its remaining Alaskan assets to privately-held independent Hilcorp last year, while Exxon has divested some of its conventional Permian assets and North Sea assets during 2021. In its earnings announcement Tuesday, BP said “We continue to expect divestment and other proceeds for the year to reach $5 [billion]-6 billion during the latter stages of 2021. As a result of the first half year divestments, our target of $25 billion of divestment and other proceeds between the second half of 2020 and 2025 is now underpinned by agreed or completed transactions of around $14.9 billion with over $10 billion of proceeds received."

So, divestment of certain assets is a significant part of the emissions reduction strategies at all of these oil majors. While it’s difficult to see what this achieves in terms of overall benefit to the single global atmosphere all of Earth’s inhabitants share, it does help these specific companies reach their climate goals and satisfy their own activist investors. The acquiring companies will need to look after their own interests and goals.

At the same time, of course, all of these majors continue to invest the great preponderance of their capital dollars into their remaining and growing oil and gas-related operations. At BP, where the overriding corporate catch phrase is “performing while transforming,” the company’s Q2 earnings landing page boasts that “Production flowed from the Gulf of Mexico Manuel project, while in Texas we prepared our Argus platform for its move offshore.” That Argus platform isn’t going to be building windmills or siting solar arrays - it’s going to be drilling for oil and gas and lots of it.

That same page contains this quote from Gordon Birrell, executive vice president of production and operations: “Our success depends on hydrocarbons from our oil, gas and refining assets – they are the engine that delivers cash for our investors and investment in our new businesses.” [Italics added]

Shortly before its earnings announcement last week, Exxon announced yet another major discovery well in its prolific Stabroek development offshore Guyana. According to its announcement, “The Whiptail-1 well encountered 246 feet (75 meters) of net pay in high quality, oil-bearing sandstone reservoirs. Drilling is also ongoing at the Whiptail-2 well, which has encountered 167 feet (51 meters) of net pay in high quality, oil-bearing sandstone reservoirs. Drilling continues at both wells to test deeper targets, and results will be evaluated for future development.” More profits for Exxon, more social investment bounty for the people of Guyana, and more funding for Exxon’s carbon capture business and other green ventures.

Shell, meanwhile, recently announced the final investment decision in a Gulf of Mexico venture it calls the Whale Project. The company expects this project to ultimately result in the production of up to 100,000 barrels of oil each and every day to help satisfy the world’s still-rising appetite for crude. This is, after all, the core business Royal Dutch Shell has been in for the past 114 years.

Wael Sawan, Shell Upstream Director, had this to say about the Whale Project: “We are building on more than 40 years of deep-water expertise to deliver competitive projects that yield high-margin barrels so that we are able to meet the energy demands of today while generating the cash required to help fund the development of the energy of the future.” [Italics added]

Yes, exactly.

Activists truly interested in improvements to the global emissions profile should applaud these ongoing investments in oil and gas operations, since they are the means by which these major oil companies will finance their ventures into the various green business spaces they decide to pursue, which are likely to be far less profitable. Despite all of their green messaging, after all, these companies are still Big Oil companies, and they will have to remain successful in their core business ventures if their green goals are ever truly to be met. That’s reality.