HOUSTON/BOSTON – Top US oil firms are doubling down on drilling, deepening a divide with European rivals on the outlook for renewables, and winning support from big investors who do not expect the stateside companies to invest in wind and solar.
Among a dozen US fund managers contacted by Reuters from companies overseeing about $7 trillion in assets, most said they prefer oil firms to generate returns from businesses they know best and give shareholders cash to make their own renewable bets.
With oil and gas prices jumping this year, the US oil majors mostly have delivered higher returns and achieved better earnings multiples and dividend yields than rivals, cementing shareholder enthusiasm.
“At the end of the day, you don’t invest in a company because they promise nice things,” said Adams Funds head Mark Stoeckle, who favours US producers and whose funds do not currently own Royal Dutch Shell Plc (RDSa.L), TotalEnergies (TTEF.PA) or BP Plc (BP.L).
Michael Liss, senior portfolio manager of the American Century Value Fund (TWADX.O), said it owns more of the US majors than European partly because the American companies spend a lesser share of capital on things like renewable power and alternative fuels at a time when oil demand remains strong.
“We think their pace is going to be more realistic” in the adoption of new energy sources, Liss said.
The split strategies – returns or a faster energy transition – highlight differing investor and government pressures. They also show the difficulties of crafting a global plan to reduce fossil fuel use, the central topic of the coming United Nations COP26 climate change conference.
Top US oil firms Chevron Corp (CVX.N), Exxon Mobil Corp (XOM.N) and ConocoPhillips (COP.N) reject a direct role in wind and solar and have put less of their outlays into energy transition plans compared with the Europeans. Most expect to increase oil production.
US producers say they share concerns about climate change. They are pledging to produce the same barrels of oil with lower greenhouse gas emissions than before. They are also trying to make burying carbon in depleted oilfields commercially viable, as well as developing new cleaner fuels like hydrogen and biofuels from algae.
But as Chevron CEO Michael Wirth recently said, US companies prefer to generate profits for shareholders “and let them plant trees.”
“There are some who believe we should do what the European companies are doing,” Wirth told reporters last month after giving an update on the company’s energy transition plans. “But I would say that’s not the majority of the shareholders that I hear from.”
Europe’s energy crisis – with natural gas and electricity prices soaring – partially reflects an underinvestment in fossil fuels, Exxon Senior Vice President Neil A. Chapman said at a conference this month.
US and European governments differ on how they want oil companies to cut emissions. Where US lawmakers favour increased spending on carbon capture and storage, German and British governments have passed laws requiring sharp reductions in greenhouse gases.
A Dutch court in May ordered Royal Dutch Shell to cut its carbon emissions 45 per cent by 2030, a decision that would hasten its exit from fossil fuels. Shell and BP have shed US shale holdings as part of their shift, while TotalEnergies has pledged 20 per cent of its capital spending on electricity and renewables.
Shawn Reynolds, a VanEck fund manager, said current high oil prices lend support to the US majors’ strategy and illustrate the danger of decarbonising production without lowering carbon fuel demand. “There is this slow awakening that an energy transition isn’t going to happen overnight,” he said. Oil companies that expand into low-margin renewables will miss oil and gas profits, he said.
