OPINION: The oil and gas sector is back on top with investors and is showing no sign of squandering its advantages, even as many companies push ahead with energy transition.
Leading companies are exploring new ways of expanding their overall businesses and seem determined to keep cash and dividends growing as well.
Supermajors such as ExxonMobil have seen their share price soar by 60% over the last six months as demand for oil soars on the back of the Ukraine crisis and post-pandemic rebound.
Big dividends and share buybacks have kept a brake kept on capital expenditure, but there is also a growing trend toward bringing in new investors and partners for the energy transition.
The board of Spanish group Repsol just approved the sale of a quarter share of its growing Repsol Renovables business to Credit Agricole Assurances of France and Energy Infrastructure Partners of Switzerland for nearly $1 billion.
The blue-chip investors will provide cash to enable the renewables unit to grow quickly with plans to increase installed capacity from 1.6 gigawatts to 6 GW within four years and reach 20 GW by 2030.
Italy’s Eni has started to advance with its own plans to float its renewables and electricity arm, Plenitude, on the Euronext stock exchange in Milan.
Eni still intends to keep a majority share in the business which has installed capacity of 1.4 GW and a pipeline of 10 GW of new projects.
Earlier this year, Eni listed its Norwegian upstream oil and gas business, Vaar Energi, on the Oslo Stock Exchange but has kept 70% control.
Repsol may take a parallel path, according to reports suggesting that talks have begun with US private equity giant EIG Global Energy Partners over the sale of a 25% stake in its entire upstream business.
These strategies raise cash and create value that helps underpin the core group's transition strategy.
The Ukraine war has switched the focus back to energy security, heralding a new cycle of higher oil and gas prices, corporate energy company profits — and some windfall taxes.
Into the mix has also come a pushback, particularly in the US on “woke capitalism” and what some see as an over-emphasis by some institutional investors on environment and social corporate governance issues, ESG.
For others, the problem is not ESG itself, but a lack of quality control when it comes to greenwashing or outcomes.
The sea change can be felt in countries such as Canada where oil sands production is the target of fierce international and domestic criticism over environmental issues.
As oil sand investment begins to bounce back, often linked to new carbon capture schemes, Alberta Premier Jason Kenney reckons that climate conscious-critics are being “mugged by reality”.
The planned Keystone XL pipeline link from Canada to the US was cancelled by US President Joe Biden, but other pipeline routes are being expanded as oil sands producers promise new carbon capture schemes.
The same pressures are on show in Australia, where Prime Minister Anthony Albanese was elected promising a renewables revolution, but soon had to look for coal to head off a looming energy crisis.
Sitting at the heart of this debate, it is tempting for the oil companies to dial backwards and replenish the oil investments that are bringing such lavish rewards at present.
New strategies for bringing in cash to fund the energy transition while sustaining the lavish rewards that oil investors expect are something of a balancing act.
In the case of Repsol and Eni, the commitment to seeing through the energy transition stands out. The success or failure of such strategies is likely to exert a powerful influence on the whole industry.
(This is an Upstream opinion article.)
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