Mega Exxon Mobil deal is going to test the climate-aware shareholders. Despite pressure on global corporations to move away from fossil fuels in favor of cleaner energy like wind and solar, Exxon has not bet big on renewables like many peers.
Exxon Mobil’s $60 billion bid for Pioneer Natural Resources would expand the top U.S. oil producer’s footprint in the country’s biggest oilfield. This is raising questions for Exxon Mobil shareholders over its transition to low-carbon energy.
Exxon Mobil deal
Negotiations between Exxon and Pioneer are advanced but have not yet led to an agreement over the acquisition deal of the largest oil producer in Permian basin.
The Exxon Mobil deal puts focus on the Permian and signals Exxon, valued at $436 billion, is sticking to is fundamental business and is pursuing a strategy of consolidation which makes climate sense to some investors, bankers and industry analysts said.
Exxon not betting on renewables
Despite pressure on global corporations to move away from fossil fuels in favor of cleaner energy like wind and solar, Exxon has not bet big on renewables like many peers. So far, Exxon Mobil shareholders have profited as the share price more than doubled since early 2021 when activist investors publicly pushed for changes.
Right now “activists are criticizing companies for not focusing on their core business, telling them to separate their renewable businesses,” said Jim Rossman global head of shareholder activism and advisory defense at Barclays.
Big Oil is responsible for the bulk of human-induced greenhouse gas emissions and pressure for action is building.
U.S. energy firms have been among the biggest winners so far, with Exxon’s price gaining around 75% since the start of last year against a 10% drop in the S&P 500.
Exxon Mobil’s valuation or net worth of $434.49 billion as of October 6, 2023. Its market cap has increased by 17.32% in one year.
Exxon Mobil and Engine No. 1
The Exxon Mobil deal comes two years after newcomer investment firm Engine No. 1 in 2021 put three new executives onto Exxon’s board, partly amid criticism over its moves on climate.
But Engine No. 1 also urged Exxon to focus on its best assets, including production in the Permian basin, arguing investments there deliver more than far-off, costly projects.
Privately, investors worried if Exxon bowed out of production, someone else would pick up the slack and nothing would be gained for shareholders or energy transfer.
Since then, despite committing to spending $17 billion on carbon capture and storage technology, biofuels and hydrogen in an effort to lower the carbon footprint of its operations, Exxon remains a laggard among its global peers.
Analysis of Exxon’s net-zero plan by the Climate Action 100+ group of investors in October 2022 showed that 73% of the company’s capital expenditure was not aligned with its chosen International Energy Agency scenario benchmark.
While Engine No. 1’s campaign at Exxon is remembered for its climate component, bankers and lawyers also said that the firm won its Exxon board seats largely because it made economic arguments.
Most companies want returns over climate change
Similarly, more recent activist campaigns could even suggest climate change is not playing a big role at all, bankers and analysts said. Investors acknowledged that many worry less about cutting carbon emissions and more about making returns as markets look more skittish again.
Investors Starboard Value and Ancora Group Holdings this year urged Algonquin Power & Utilities to find a buyer for its renewable energy division, arguing its core utilities business is undervalued.
Elliott Investment Management, meanwhile, wants NRG Energy to find a new CEO, refresh its board and review its purchase of security system company Vivint Smart Home.
Similarly, oil major Shell is being pressured by Third Point to break up for financial reasons rather than anything to do with climate change.
