(Bloomberg) — After spending the first half of his seven-year tenure at the helm of Exxon Mobil Corp. has been attacked by environmentalists and investors alike, Darren Woods is on the attack.
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This year, Woods has already filed an arbitration case against Chevron Corp. over attempts to buy Exxon’s massive offshore oil project in Guyana, and a lawsuit against investors who demanded his company cut emissions. A few months earlier, he agreed to a $60 billion takeover that would make Exxon the largest U.S. shale producer.
Woods is also becoming much more strident about climate goals in speeches and interviews, arguing that fossil fuels will be needed for years to come to meet energy demand, and that the world is not on track to net-zero carbon emissions by 2050 because people unwilling to pay for cleaner alternatives.
The message may be controversial, but it is resonating on Wall Street, where “ESG” is quickly becoming a loathed name as ambitious environmental, social and governance promises thwart the need for safe and affordable energy. Exxon is up 89%, more than four times the S&P 500, since entering a climate-driven proxy battle with Engine No. in 2021. 1 lost.
It’s a remarkable turnaround from the pandemic era, when Exxon posted its biggest loss ever, employees left en masse and a shareholder revolt forced Woods to replace a quarter of his board. Exxon’s revival is emblematic of a resurgent US oil industry, which now pumps 40% more crude every day than Saudi Arabia, forcing OPEC and its allies to retreat.
“It wasn’t long ago that it seemed like the industry needed a green approach to raising capital,” said Jeff Wyll, a senior analyst at Neuberger Berman, which manages about $440 billion. But the Russian invasion of Ukraine “flipped the switch and energy security became more important. Exxon benefited because they never abandoned their traditional businesses.”
When Woods takes center stage at the CERAWeek by S&P Global energy conference in Houston this week, he is likely to double down on his long-held view that there will be a demand for fossil fuels in the coming decades and that governments and consumers – rather than just big corporations – will demand oil. will have to pay for any meaningful transition to greener energy.
For those who see Exxon and Big Oil responsible for decades of delays and misinformation about climate change, this is an unpopular argument. But it is one that was created from a position of increasing financial strength.
Exxon paid $32 billion in dividends and buybacks in 2023, the fourth-highest in the S&P 500, and is promising even more this year. The impending acquisition of Pioneer Natural Resources Co. worth $60 billion will make it the country’s dominant shale oil producer, putting it at the top of the sector and largely responsible for OPEC+’s loss of market share to the US.
Exxon also operates one of the world’s fastest growing major oil projects in Guyana, the largest crude oil discovery in a decade, and recently completed a series of refineries and petrochemical expansions.
Its super-sized rivals are now rushing to catch up.
Chevron agreed to buy Hess Corp. for $53 billion, largely to acquire a 30% stake in Exxon’s Guyana project. But Exxon claims the deal “sought to circumvent” a contract that gives the right of first refusal of stake, and is taking the dispute to arbitration at the International Chamber of Commerce in Paris.
Shell Plc and BP Plc, meanwhile, under new CEOs, are now shifting more of their investment dollars back to oil and gas after their shares slumped following a shift to renewables.
The struggles of Europe’s supermajors show the dangers of replacing high, steady cash flows from fossil fuels with low-margin renewables, said Greg Buckley, a portfolio manager at Adams Funds who helps manage about $3.5 billion, including Exxon- shares.
“ESG was popular, but I think return on capital is ultimately more popular,” he said. Shell and BP ‘found this out the hard way’.
The shift in ESG terminology is a recognition that the energy transition will be complex and will not unfold the same way around the world, Dan Yergin, the vice chairman of S&P Global, which organizes the CERAWeek conference, said in an interview. Conflicts around the world, including in the Middle East and Ukraine, have underscored the need for reliable energy supplies as investors remain focused on returns, he said.
“The energy companies have shown discipline in their capital investments and have been responsive to investors,” Yergin said. “You can see that in their expenditure and it has renewed the social contract between companies and investors.”
Woods also learns from his own experiences with activist shareholders. In January, the company filed a lawsuit against American and Dutch climate investors who buy shares to push for lower emissions. The process by which they get votes on the ballot at company meetings “has become ripe for abuse by activists with minimal holdings and no interest in increasing long-term shareholder value,” Exxon said in the lawsuit.
Woods is also more vocal about his vision for a future with lower CO2 emissions. “The dirty secret that no one is talking about is how much this will all cost and who is willing to pay for it,” he said in a recent Fortune podcast. The world has “waited too long” to consider all the solutions needed to reduce emissions.
The comments sparked anger among environmentalists.
“It’s an irritating piece of rhetoric, especially from Exxon because they are most associated with efforts to slow progress on climate change,” said Andrew Logan, senior director of oil and gas at CERES, a coalition of environmentally conscious investors with $65. trillion under management. “They have a long history of overpromising and underdelivering on low-carbon solutions.”
Emily Mir, a spokeswoman for Exxon, pushed back on Logan’s comments in a statement. The company has said it is targeting more than $20 billion in lower emissions investments between 2022 and 2027, in addition to the acquisition of Denbury Inc. for $4.9 billion, a deal that gave the oil giant the largest network of carbon dioxide pipelines in the US. These pipes will be critical for capturing carbon from heavily polluting facilities such as refineries and chemical plants.
“Facts that are inconsistent with ill-informed prejudices are often infuriating,” Mir said. “That doesn’t make them wrong. Someone needs to tell the truth about what it will take to achieve a net-zero future.”
In November, Woods tried to flip the script on a slogan from the long-running “ExxonKnew” environmental campaign, which claims that business leaders since the 1970s downplayed their own scientists’ warnings that carbon dioxide is causing climate change. Exxon has denied deliberately misleading the public about global warming.
“We have the tools, the skills, the scale – and the intellectual and financial resources – to bend the curve on emissions,” he said at the 2023 APEC CEO Summit in San Francisco. “Exxon Mobil knows that.”
But the energy transition is still major. Fears that oil demand will peak as early as 2030 have led investors to discount the ability of Exxon and its peers to maintain dividends and buyback programs as the transition takes hold. The S&P 500 is now dominated by technology stocks, whose profits are seen as more resilient for decades.
Even after the rally in recent years, Exxon is only the 17th largest company in the S&P 500, trading at 12.2 times earnings, 42% below the index average. Energy stocks make up less than 4% of the index, despite the US being the world’s largest oil producer.
“Exxon and the industry have yet to demonstrate how they will generate money in a low-carbon future,” Logan said.
—With help from Naureen S Malik.
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