The world's biggest investors asked for a report on how serious the global oil producers are about switching towards greener production and it turned out that the biggest American players, Chevron and ExxonMobil, are one of the worst in the industry.
The researchers of the Carbon Disclosure Project analyzed 11 biggest oil & gas companies and where they stand in the transition to green energy that is getting closer than ever with the growing popularity of electric cars and solar power. Plus, last year's Paris agreement on taking hold of the climate change issues through controlling CO2 emissions that was supported by virtually every country in the world is putting additional pressure on oil giants to clean up their operations.
Among the group of the analyzed oil & gas companies, the two U.S. producers, Chevron (NYSE: Chevron Corporation [CVX]) and ExxonMobil (NYSE: Exxon Mobil Corporation [XOM]), along with the Canadian counterpart Suncor (NYSE: Suncor Energy [SU]) showed the worst results. At the top of the rating came Norway's Statoil (NO: STO), Italian Eni (NYSE: ENI S.p.A. [E]) and France's Total (NYSE: TOT), named Europe's pioneers in the transition to the alternative energy.
The Guardian said that all producers were rated on several criteria that included the level of their greenhouse gas emissions, mix of assets and methods used for their extractions, their general view on climate-related issues and number of investments in renewable energy initiatives along with the use of water resources and general efficiency of operations. In other words, the researchers looked deep into the companies' operations and what they found there didn't please everyone.
Financial Times adds that the research was compiled by CDP on behalf of more than 800 investors with over $100 trillion in assets. Among them is a Norwegian oil fund as well as the world's biggest asset manager BlackRock. The Bank of England was also one the interested investors and said that it was critical to have a full disclosure on the state of green energy and climate change initiatives from such a "closed" sector as oil & gas in order to assist investors in allocating their funds.
However, it is important to mention that Russia's Rosneft (LSE IOB: Rosneft [ROSN]), PetroChina (HKEX: PetroChina ) and Saudi Aramco were not included in the ranking, as they refused to answer the researchers' questions. If included, these oil producers could well adjust the rating, considering that Russia heavily relies on fossil fuels, with 90% of all energy in the country coming from oil, gas and coal.
The researchers say that because of the growing popularity of electric cars and alternative energy that challenges the leading position of oil, gas will become the "bridging fuel" for many countries transitioning from the "old" coal-dependent energy. This means that natural gas is likely to see an increase in demand whereas oil will gradually fall out of favor. And this is exactly where the best-performing oil company, Statoil, is coming from. Norway's Statoil was ranked the first mainly due to a large share of gas in its reserves, says Financial Times. This is not a surprise because Statoil has a long history of North Sea explorations focusing on natural gas, what makes it more prepared for the greener future than others.
Second place was taken by Italy's Eni, the oil company that also dedicates big part of its business to projects related to gas. Eni plans to spend €1 billion on alternative energy initiatives over the next 3 years, mostly on solar energy in Italy, Pakistan, Egypt and Algeria, say the researchers. Likewise, Total made its way to the top of the rating as it recently bought a solar panel producer Sunpower and Saft, a battery manufacturer, which are quite interesting acquisitions for a traditional oil company. Generally, the European oil producers pay a lot of attention to "side-projects" in the areas of alternative energy, which is not the case in North America.
"Clear transatlantic divide with European majors coming out on top across most key areas. Current European majors’ portfolios have higher percentage of gas relative to their American peers and some are showing signs of tilting operations further towards gas. Differing exposure levels to risky oil sand resources is further evident across the geographical split," the researchers said in the report.
The group of the middle performers included Dutch Shell (NYSE: Royal Dutch Shell Class A [RDS.A]), BP (NYSE: BP [BP]), Occidental (NYSE: Occidental Petroleum Corporation [OXY]) and Petrobras (NYSE: Petroleo Brasileiro Petrobras [PBR]), who have made attempts to expand their green initiatives but they still remain limited. However, the group of the worst-performing companies consisted entirely of North American producers, with three of them coming from the U.S. and one from Canada. ExxonMobil got the tenth place due to being the company that is least supportive of carbon regulation and generally lagging behind other producers in terms of emissions and climate governance. Yet, Canadian Suncor was named the least "green" oil producer of all for being an entirely oil player with almost no natural gas business and highest exposure to oil sands. The company also has the "highest upstream emissions intensity".
The Guardian adds that governmental pressures in Europe also play an important role here as European oil companies are often pushed to become greener and cleaner, which is not the case in the United States. The situation is also unlikely to improve in the next years, if not deteriorate even further, under the presidency of Donald Trump and a Republican-dominated Congress.
This is the kind of guidance CDP gave the large group of oil investors and this clearly doesn't sound like a favorable investment advice for the North American companies, although they are the ones expected to benefit from Trump's election win.