You may have noticed that the big oil companies had rather a good time last year. They could hardly fail to make bonanza profits given what was happening to the price of their principal products. Shares in both Shell and BP were among the best UK performers of 2022, and portfolio managers who had abandoned producers of the nasty black stuff lost out badly.
Yet on a longer view, both shares look like feeble also-rans when compared to their biggest competitor, Exxon Mobil. While both BP and Shell first reached today’s price at the start of the millennium 23 years ago, Exxon shares have more than trebled in sterling terms since then. BP is valued at £108bn, while Exxon stands at $460bn. Shell’s market cap is £165bn after posting pretax profits of $40bn yesterday.
This all looks like a damning indictment of the shortcomings of British (and European) management, so it is worth seeing how we got here. BP has been going green for years, ever since it first launched its “Beyond Petroleum” shtick. Shell’s management sounded slightly weary of beating this drum, although both companies seem to be forever fretting about the environment rather than concentrating on finding and exploiting the raw material which drives their businesses.
Compare and contrast, as they say, with Exxon, which this week reported a pre-tax profit of $55bn. Darren Woods, the CEO, pointed out that the company was reaping the benefit of bucking conventional wisdom and continuing to invest through the oil price slump. He is in no doubt. Exxon sees oil as the world’s key fuel to 2050 and beyond. Its finance director followed up, telling the FT that “first and foremost priority is investing in our business to meet demand”.
That means capital spending of $25-$35bn, after which come share buybacks, $50 billion between 2022 and 2024, and dividends. Woods is emphasising something which his trans-Atlantic rivals seem to have forgotten – he is running an oil company. This rather vulgar home truth seems to have upset the FT’s commentators, who grumbled that Exxon has earmarked only $3.4bn to fritter in the fashionable area of renewables. Perhaps Woods can’t see these activities making any money.
Which brings us back home. Oil companies have been demonised in the UK. Virtue-signalling investment companies refuse to hold the shares, and the poor performance owes as much to low ratings as to management failings. Woods might feel that there will never be a better time to spend Exxon’s money on buying a competitor on the cheap.
This is what BP itself did in taking over Sohio and Amoco following its success with Alaskan oil exploration. Exxon might frame a takeover as a company that still believes in oil buying one that no longer does, from shareholders who are embarrassed to own it. That would be a more constructive use of Exxon’s riches than constant buybacks and green spending. A bid approach for BP would concentrate minds like nothing else, at both ends of town. It might even force some realism into the cosy fantasy that windmills and solar panels can run a modern economy. Now that would be a result.
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