Investors on board as U.S. oil majors reject wind and solar projects, Energy News, ET EnergyWorld
Among a dozen U.S. fund managers contacted by Reuters with companies overseeing around $ 7 trillion in assets, most said they prefer oil companies to generate returns from companies they know best. and give shareholders money to make their own revolving bets.
With soaring oil and gas prices this year, the US oil majors have mostly generated higher returns and achieved better earnings multiples and dividend yields than their competitors, cementing shareholder enthusiasm.
“At the end of the day, you don’t invest in a company because it promises great things,” said Mark Stoeckle, director of Adams Funds, which favors American producers and whose funds currently do not own Royal Dutch. Shell Plc, TotalEnergies or BP Plc. .
Michael Liss, senior portfolio manager of the American Century Value Fund, said he owns more US majors than Europeans in part because US companies spend less of their capital on things like renewable energy and alternative fuels at a time when demand for oil remains strong. .
“We think their pace is going to be more realistic” in embracing new energy sources, Liss said.
Divided strategies – yields or faster energy transition – highlight the different pressures from investors and governments. They also show the difficulties of developing a global plan to reduce the use of fossil fuels, a central theme of the forthcoming United Nations conference on climate change COP26.
NO TREE PLANTING
The main US oil companies Chevron Corp, Exxon Mobil Corp and ConocoPhillips reject a direct role in wind and solar and have invested less in energy transition plans than the Europeans. Most expect to increase oil production.
U.S. growers say they share concerns about climate change. They are committed to producing the same barrels of oil with fewer greenhouse gas emissions than before. They are also trying to make burying carbon in depleted oil fields commercially viable, as well as developing new, cleaner fuels like hydrogen and biofuels from algae.
But as Chevron CEO Michael Wirth recently said, American companies prefer to generate profits for shareholders “and let them plant trees.”
“Some think we should be doing what European companies are doing,” Wirth told reporters last month after taking stock of the company’s energy transition plans. “But I would say it’s not the majority of shareholders that I hear.”
The energy crisis in Europe – with soaring natural gas and electricity prices – partly reflects underinvestment in fossil fuels, Exxon Executive Vice President Neil A. Chapman said at ‘a conference this month.
The US and European governments differ on how they want oil companies to reduce their emissions. Where US lawmakers favor increased spending on carbon capture and storage, the German and UK governments have passed laws demanding deep reductions in greenhouse gases.
A Dutch court in May ordered Royal Dutch Shell to cut its carbon emissions by 45% by 2030, a move that would speed up its move away from fossil fuels. Shell and BP have sold their stakes in US shale as part of their switch, while TotalEnergies has pledged 20% of its investment spending in electricity and renewables.
Shawn Reynolds, a fund manager at VanEck, said the current high oil prices support the strategy of the US majors and illustrate the danger of decarbonizing production without reducing demand for carbonaceous fuel.
“There is this slow awakening that an energy transition will not happen overnight,” he said. Oil companies that expand into low-margin renewables will lose their oil and gas profits, he said.
LIMITS TO GREEN INVESTMENT
The money flowing into oil stocks runs counter to wider membership in climate-sensitive funds. U.S. equity funds classified as “sustainable” by Morningstar, meaning they avoid or significantly underweight fossil fuel stocks, collected $ 25.7 billion this year through September 30, or more. half of inflows into US equity funds without an explicit focus on sustainability.
The total return for the XOP ETF, which tracks oil and gas stocks, was 92% for the year on Tuesday afternoon, compared to 22% total return for a representative ESG fund, the Vanguard FTSE Social Index Fund. The total return of the S&P 500 Index was 23% over the same period.
Passive investors have become the biggest owners of the biggest oil companies. These companies generally cannot sell oil stocks to signal their discontent, and must instead channel their climate concerns through discussions with the companies and proxy votes.
BlackRock Inc and Vanguard, the two largest passive investment firms with some $ 17 trillion in assets between them, backed Exxon dissenting directors and backed calls for the annual meetings of Chevron and ConocoPhillips to reduce carbon emissions resulting from the use of their products by customers. Neither company would comment on specific energy companies, nor would influential state pension funds in California and New York.
Among the 25 largest actively managed U.S. mutual funds, American Funds products were almost the only holders of major U.S. and European oil companies, according to data from Morningstar Direct.
A spokesperson for American Funds parent company Capital Group declined to comment. Capital stock analyst Craig Beacock said in July that rising oil prices could create challenges for oil companies’ clean energy approaches.
Harvard University, Rockefeller Brothers and other US institutions have joined a movement led by the Norwegian sovereign wealth fund to reduce exposure to fossil fuel stocks. A recent activist tally revealed that institutions with collective assets of $ 39.2 trillion have engaged in some form of divestment from fossil fuels.
Investors contacted by Reuters said they were not ready to follow. Better to stay invested and pressure companies to explain how they can help limit the rise in global temperature, said Bruce Duguid, chief executive of EOS, a branch of Federated Hermes.
Iancu Daramus, senior sustainability analyst at investor Legal & General Investment Management, said companies should generally cut production and pay dividends. He doubts that emerging market growth will keep demand for oil and gas high over the long term.
Yet too many oil executives believe they can outlive others as the world turns to other fuel sources. Few CEOs want to make big cuts in production, he said.
“Every (oil) company we talk to tends to say they will be the last ones standing,” Daramus said.