Chevron’s Answer to Climate Change: Drill, Baby, Drill!

Guest “this is fracking hilarious” by David Middleton

Chevron’s Answer to Climate Change Is to Keep Drilling for Oil
The energy giant believes it can still wring years of profits from fossil fuels while its European rivals embrace renewables.

By Kevin Crowley and Bryan Gruley for Bloomberg Green

Speaking to the Texas Oil & Gas Association in July, Chevron Corp. Chief Executive Officer Mike Wirth assured his audience that the global clamor for clean energy “doesn’t mean the end of oil and gas.” On the contrary, Wirth said, the energy business is simply undergoing another of its natural transitions. “We’ll find ways to make oil and gas more efficient, more environmentally benign,” he said. “And it will be a part of the mix, just as biomass and coal are still enormous parts of the mix today.”

To activists alarmed at the urgency of the climate crisis, Wirth’s comments are as out of touch as they are predictable, coming from someone who profits from the status quo. For unlike its rivals in Europe, Chevron is betting its future less on renewable energies such as wind and solar and more on the subterranean stuff derived from hydrocarbons.

[…]

Covid-19 has shown the world’s biggest oil and gas companies a vision of a bleak future in which they’re neither wanted nor needed.

[…]

BOTTOM LINE – Chevron’s recent $5 billion buyout of Noble Energy is a testament to its belief that expanding in shale and other fossil fuels makes sense, despite fears that oil demand is peaking

Bloomberg

Why is it that green “journalists” are always shocked when oil companies conduct their businesses as if they were oil companies? They might be shocked to find out that ExxonMobil also still acts like an oil company, even more so than Chevron.

Exxon Mobil: Doubling Down While Facing Peak Oil Demand
Aug. 10, 2020

RB Equity
Long only, value, long-term horizon

Summary
*Exxon is setting itself apart from other oil majors, by largely sticking to its upstream growth plans.

*Investor sentiment has turned unusually negative, as evidenced by lowest multiple even compared to past cyclical downturns.

*A review of oil demand and supply situation points to continued need for investment. At the same time other oil majors are clearly pivoting away from E&P.

*A future oil price spike cannot be ruled out, and may in fact be more likely now. Given its project pipeline, XOM would benefit the most out of all the majors.

Exxon Mobil (NYSE:XOM), Exxon for short, has taken a “contrarian” position with regard to the future of oil demand. With most competitors pivoting away from upstream growth, Exxon continues to press ahead with investments despite very challenging current price environment for crude and natural gas. Investors have punished this divergent view but management remains unapologetic, pointing to a decades-long consistent strategy to use the balance sheet to navigate cyclical downturns. A lot has been said about the dividend and its sustainability, but the overall issue is a secondary one. The dividend will be maintained or it may be cut; the larger issue is how capital is being allocated and whether Exxon’s bet on its upstream investments will ultimately offer a huge payoff to investors or only a lot more pain.

[…]

Seeking Alpha

“RB Equity” then points out the bleeding obvious: “Oil demand is ‘topping’ but no cliff will follow the top”. No one knows if or when oil demand will ultimately peak. Green “journalists” seem to think that it is an incontrovertible fact that such a peak has already occurred due to COVID-19. “RB Equity” posted several charts demonstrating that there is no way to know if or when oil demand will peak and noted that it really won’t matter if it does.

The first is from BP’s 2019 Energy Outlook:

Figure 1. If the World becomes collectively as dumb as Joe Biden, peak demand is now. If the global economy continues to expand, peak demand is beyond 2040. Seeking Alpha

The second chart is from ExxonMobil and explains why Chevron and ExxonMobil are ignoring the example that green “journalists” fantasize about European oil companies setting:

Figure 2. Even if the world adopted the level of global stupidity required to defeat RCP8.5, massive upstream investment will still be required. Seeking Alpha

The third chart is from the International Energy Agency:

Figure 3. This is IEA’s 2019 forecast of oil demand out to 2040. The “stated policies” forecast is on the left. The forecast on the right is for a world in which we lock the economy down tighter every year in an effort to wipe out all viruses. Click to enlarge. Seeking Alpha

“RB Equity” goes on to note that “nobody really knows how demand will develop for the next 20 years” and notes that the recent drop in upstream capital expenditures makes it fairly likely that high oil prices will return and that companies with solid inventories of exploration and exploitation opportunities (like ExxonMobil) are well-positioned to take advantage of such an eventuality. This bit of reality probably also factored into Chevron’s thinking when they dropped $5 billion on acquiring Noble Energy… Particularly after Oxy snatched Anadarko away from Chevron’s grasp in what was supposed to be a done deal.

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August 18, 2020 at 04:30AM

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