Share Watch: Eco battles pose headaches for oil giant ExxonMobil
Perhaps I'm not modern enough, but I can't always get my head around the new eco passions which suggest that the world will be better off if we stop looking for oil and gas. I have to remind myself I'm coming from an era when we tended to believe Eartha Kitt when she sang: "The music that excels is the sound of oil wells, as they slurp, slurp, slurp into the barrels."
Of course, when she had her hit, the streets were not filled with protesters angry about greenhouse gases, and politicians were not desperately scrambling to explain climate change.
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Things are changing in the oil business, though you might not notice if you were only reading pronouncements from the global giant we are looking at today, ExxonMobil.
The group was pretty much in at the start of the oil industry. It was in the mix at the time when the US Supreme Court in 1911 had to step in to put manners on the industry's version of the 'Wild West', splitting the Rockefeller Standard Oil monopoly. However, in world terms and since the 'oil shocks' of the 1970s, the group does not have the influence it once did.
Back in 1911, two of the companies that were spun off were Standard Oil of New Jersey (later Exxon) and Standard Oil of New York (eventually Mobil). At the close of the 20th century, both merged, forming ExxonMobil. Today, the group is the largest listed oil and gas company, but trails Saudi's Aramco, Russia's Gazprom and China's national oil company as the world's largest energy entity.
A decade ago, ExxonMobil purchased XTO, at the time a large operator in the unconventional shale oil and gas business. Since then, the development of shale has become critically important to the US, and today accounts for two-thirds of oil and four-fifths of gas production there. It has also become important to Exxon as it plans, together with its major offshore Guyana discoveries, to significantly increase its output. This will require it to step up capital expenditure over the next few years. It also spells trouble for Opec and its attempt to manipulate oil prices, and bad news for the Paris Climate Agreement.
Exxon, unlike some of its rivals, is slow to recognise that climate change policies could curb the upward trajectory of oil consumption.
A recent report claimed that the five largest listed oil and gas companies (including Exxon) spend hundreds of millions a year lobbying to delay or block policies aimed at tackling climate change. If this is true, it is cutting little ice with some large investors, like the New York State Retirement Fund and the Church of England.
Both were denied a chance to vote on a proposal that the company sets targets for cutting greenhouse gas emissions. They expressed "profound dissatisfaction" and then called for an independent chairman, stating that such an appointment is an alternative to ensure the company does more about climate change. The proposal was defeated but is unlikely to go away.
While a lot is stacked against the oil industry, with climate change, evolving investor sentiment and difficulties in predicting prices, it does not appear to hinder Exxon. Total revenues last year were $279bn (€249bn), up a third over the past two years. Its share price is hovering around the low $70s and like its rivals Shell, Chevron and BP, is down since last August. Net income was $21bn and cashflow from operations and asset sales a considerable $40bn.
This enabled the company to fund investments, reduce its debt, increase dividends and buy back its shares.
Since the break-up in 1911, the company has never failed to pay a dividend and while some investors are of the opinion Exxon is a safe bet for dividends in the long term, others are not too sure. However, the share is still worth having.
Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned.