The last barrel

I have to commend the Norwegian government for the bold actions that they have taken to move their country’s energy sector away from oil and gas. In a well-publicized move, Statoil officially changed its name to Equinor in mid-May. The website noted that the removal of “oil” from their moniker was made to represent the company’s growing investments in renewable energy. They chose “equal” to reflect corporate values and a more balanced energy portfolio, and selected “nor” to maintain its country identity. 

The rebranding was accompanied by a new website and updated star logo with the following explanation: “Change has been a constant for us from the very beginning. Now we have a responsibility to change again. To find a better balance. To provide the energy the world needs and effectively fight climate change.” Equinor CEO Eldar Sætre said it will take time to become accustom to using the new name, “but the change is for the better.” The “new” company is now being traded as EQNR on the New York Stock Exchange.

Green pressure intensives. Some of the world’s largest fund managers are ratcheting up pressure on oil companies, expressing fear that a lack of action over addressing climate change could risk their investments, according to Bloomberg. A letter from 60 global investors, which combined oversee $10.4 trillion of funds, stated that “Companies must take tougher action on emissions, if they want to survive the energy transition and make a success of the Paris climate deal. The letter also stated the impact on the environment could be serious enough to leave some oil fields stranded and uneconomical to exploit. “The capital allocation decisions made today are important to determine how likely these companies are to survive the transition.”

Investors not convinced “transition” is imminent. In the second half of May, Royal Dutch Shell shareholders voted down a proposal requiring the company to more stringently align its strategy with efforts to limit global warming. The vote signaled strong support for steps the company has already taken, including investing in biofuels/clean power and working to cut emissions. The green resolution, put forward by the Dutch group Follow This, won just 5% of the shareholder vote. A similar resolution last year garnered support from 6% of investors who voted, but did help push the company to set some wide-ranging emissions goals.

Diversification or caving to environmentalism? The proposed sale of approximately $37 billion in oil and gas stocks from Norway’s $1-trillion sovereign wealth fund cleared a hurdle in April, when the exit proposal won support from key academics at Norway’s top universities. The arguments for removing oil and gas stocks from the reference index “are very convincing,” according to Knut Anton Mork, a professor at NTNU and a former chief economist at Svenska Handelsbanken. The fund shocked financial markets in November, when it asked for permission to divest oil and gas companies to reduce financial risk, arguing Norway is already heavily exposed to oil as Western Europe’s biggest petroleum producer. 

It’s interesting to note that the Norwegian Petroleum Directorate is consistently promoting newly-drilled offshore wells, that will be permanently plugged and abandoned, as “discoveries.” And in May, Norwegian Energy Minister Terje Soviknes said, “it’s far from unlikely that we will see $100 oil again.” So, the Norwegians want others to invest in their petroleum business, while they sell huge blocks of ExxonMobil and Shell (et al.) in a classic case of “do as I say, not as I do.”

Increased investment in offshore wind farms. Statoil was a pioneer in offshore wind farms and is constructing floating wind turbine facilities that can be positioned farther offshore, where winds are stronger. The company also began investing in solar energy for the first time in South America. Equinor plans to invest up to 20% of its capital in renewable energy by 2030. Equinor’s CEO Sætre said, “beyond oil and gas, we really want to be a broader energy company.”  

Offshore wind, viable or not? In spite of talk about green diversification, Shell sold half its stake in two large offshore wind projects to private equity firm Partners Group Holding in January (Reuters). The buyer acquired 45% from Shell, Eneco Holding and Mitsubishi. Notably, these are the first large-scale offshore wind projects undertaken by Shell, and they are estimated to cost $1.4 billion with a completion date sometime in 2020. So, Shell is dumping these “assets” before they are even completed. The company said it intended to continue investing in major offshore wind projects, and the reduction in ownership was due to their capital-extensive nature. Shell said it plans to redeploy the cash in new projects, with the potential for higher returns. Like its deepwater GOM Norphlet discovery, right?

Change of heart? In spite of putting its wind power business up for sale in 2013, BP now says it has the largest operated renewable energy business of any major international oil and gas company. In the U.S, BP’s renewable assets include 14 onshore wind farms, which can generate enough electricity to power all the homes in Philadelphia. In February, BP said it was looking to acquire more green energy firms, to reduce its carbon footprint. However, CEO Bob Dudley said, “although the industry is in a period of major change, hydrocarbons will remain the core of BP’s business. It’s not a race to renewables, it’s a race to lower greenhouse gas emissions.” So, it appears BP once again stands for British Petroleum, and not Beyond Petroleum?

Back to reality. According to the EIA, wind and solar accounted for about 2.5% of U.S. energy consumption in 2015. While wind and other renewables are making progress, it’s readily apparent that petroleum and natural gas will continue to provide the majority of the world’s energy for the foreseeable future. 

About the Authors

Craig Fleming

World Oil

Craig Fleming Craig.Fleming@WorldOil.com