U.S. Shale Revolution & The Incredible Shrinking Exxon

Oil majors must resign themselves to easier pickings but lower returns as a result of the shale revolution, as Exxon Mobil’s results illustrate.

Exxon Mobil put an exclamation point on what ails big oil on Friday. Never mind the immediate reaction to its slightly tepid first-quarter results. Despite just announcing its 36th annual dividend increase in a row, the total shareholder return of the world’s largest publicly held oil company is flat over the past year even as crude prices have rallied by over 50%.

One needs to look back a bit farther in time to explain that dichotomy. A decade ago, at the dawn of the shale boom, Exxon’s stock-market value could have paid for tech giants Apple ,Amazon and what was then called Google and had $100 billion in change left over. The energy sector made up 14% of the S&P 500. Today it is barely 6% and Exxon is worth less than half as much of any one of those technology titans individually.

Demand isn’t the issue. Global crude consumption is up by 16% over a decade and natural-gas demand has risen even more. Instead, it is the economics of producing oil and gas that has changed.

For decades, giant oil companies such as Exxon, Chevron, BP and Shell have been blocked from the most lucrative oil fields, which are controlled by state-owned firms like Saudi Aramco. The shale revolution in North America gave private companies an opening to boost production with much less risk than in the past.