Chevron’s Answer to Climate Change: Drill, Baby, Drill!

Guest “this is fracking hilarious” by David Middleton

Chevron’s Answer to Climate Change Is to Keep Drilling for Oil
The energy giant believes it can still wring years of profits from fossil fuels while its European rivals embrace renewables.

By Kevin Crowley and Bryan Gruley for Bloomberg Green

Speaking to the Texas Oil & Gas Association in July, Chevron Corp. Chief Executive Officer Mike Wirth assured his audience that the global clamor for clean energy “doesn’t mean the end of oil and gas.” On the contrary, Wirth said, the energy business is simply undergoing another of its natural transitions. “We’ll find ways to make oil and gas more efficient, more environmentally benign,” he said. “And it will be a part of the mix, just as biomass and coal are still enormous parts of the mix today.”

To activists alarmed at the urgency of the climate crisis, Wirth’s comments are as out of touch as they are predictable, coming from someone who profits from the status quo. For unlike its rivals in Europe, Chevron is betting its future less on renewable energies such as wind and solar and more on the subterranean stuff derived from hydrocarbons.

[…]

Covid-19 has shown the world’s biggest oil and gas companies a vision of a bleak future in which they’re neither wanted nor needed.

[…]

BOTTOM LINE – Chevron’s recent $5 billion buyout of Noble Energy is a testament to its belief that expanding in shale and other fossil fuels makes sense, despite fears that oil demand is peaking

Bloomberg

Why is it that green “journalists” are always shocked when oil companies conduct their businesses as if they were oil companies? They might be shocked to find out that ExxonMobil also still acts like an oil company, even more so than Chevron.

Exxon Mobil: Doubling Down While Facing Peak Oil Demand
Aug. 10, 2020

RB Equity
Long only, value, long-term horizon

Summary
*Exxon is setting itself apart from other oil majors, by largely sticking to its upstream growth plans.

*Investor sentiment has turned unusually negative, as evidenced by lowest multiple even compared to past cyclical downturns.

*A review of oil demand and supply situation points to continued need for investment. At the same time other oil majors are clearly pivoting away from E&P.

*A future oil price spike cannot be ruled out, and may in fact be more likely now. Given its project pipeline, XOM would benefit the most out of all the majors.

Exxon Mobil (NYSE:XOM), Exxon for short, has taken a “contrarian” position with regard to the future of oil demand. With most competitors pivoting away from upstream growth, Exxon continues to press ahead with investments despite very challenging current price environment for crude and natural gas. Investors have punished this divergent view but management remains unapologetic, pointing to a decades-long consistent strategy to use the balance sheet to navigate cyclical downturns. A lot has been said about the dividend and its sustainability, but the overall issue is a secondary one. The dividend will be maintained or it may be cut; the larger issue is how capital is being allocated and whether Exxon’s bet on its upstream investments will ultimately offer a huge payoff to investors or only a lot more pain.

[…]

Seeking Alpha

“RB Equity” then points out the bleeding obvious: “Oil demand is ‘topping’ but no cliff will follow the top”. No one knows if or when oil demand will ultimately peak. Green “journalists” seem to think that it is an incontrovertible fact that such a peak has already occurred due to COVID-19. “RB Equity” posted several charts demonstrating that there is no way to know if or when oil demand will peak and noted that it really won’t matter if it does.

The first is from BP’s 2019 Energy Outlook:

Figure 1. If the World becomes collectively as dumb as Joe Biden, peak demand is now. If the global economy continues to expand, peak demand is beyond 2040. Seeking Alpha

The second chart is from ExxonMobil and explains why Chevron and ExxonMobil are ignoring the example that green “journalists” fantasize about European oil companies setting:

Figure 2. Even if the world adopted the level of global stupidity required to defeat RCP8.5, massive upstream investment will still be required. Seeking Alpha

The third chart is from the International Energy Agency:

Figure 3. This is IEA’s 2019 forecast of oil demand out to 2040. The “stated policies” forecast is on the left. The forecast on the right is for a world in which we lock the economy down tighter every year in an effort to wipe out all viruses. Click to enlarge. Seeking Alpha

“RB Equity” goes on to note that “nobody really knows how demand will develop for the next 20 years” and notes that the recent drop in upstream capital expenditures makes it fairly likely that high oil prices will return and that companies with solid inventories of exploration and exploitation opportunities (like ExxonMobil) are well-positioned to take advantage of such an eventuality. This bit of reality probably also factored into Chevron’s thinking when they dropped $5 billion on acquiring Noble Energy… Particularly after Oxy snatched Anadarko away from Chevron’s grasp in what was supposed to be a done deal.

45 thoughts on “Chevron’s Answer to Climate Change: Drill, Baby, Drill!

  1. ”Why is it that green “journalists” are always shocked when oil companies conduct their businesses as if they were oil companies? ”

    Because they work for Bloomberg, and they write what they are expected to write in order to keep bringing home a paycheck. If they don’t, Bloomberg will let them go, and hire people who will write climate porn-laced stories about oil and gas companies. Which is probably how they got their job when the journalists they replaced tried to act like journalists.

    “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” – Upton Sinclair

    • +50

      The Upton Sinclair quote also needs a companion quote to capture the “no skin in the game” issue to fully bracket the situation of mass (policy) insanity.

    • Worse, I’m sure the journalists also believe the stuff. I’m helping a grandson navigate through the designer-brained ed that these kids are being pickled in.

    • The Sinclair quote is elegantly ironic since he was a sensational yellow journalist (precursor to fake news) whose own salary depended on … sensationalizing the news.

      • But are they competent propagandists?

        CNN says they were against Trump and they helped Trump get elected.
        And I would say it’s rare instance of CNN getting anything correct.
        And CNN is doing it again, but this time Trump will win in even larger landslide.
        I would say CNN lacks journalists and lacks propagandists. What CNN has mostly got, is they somehow managed to cornered the Airport viewing market. I also think they are fairly good at comedy news- and they hired a bunch of clowns {who constantly get everything wrong}.

        Once upon a time, journals worried about corporations controlling the news. And it appears the big corporations are running the news and corporate plan seems to be focused on hiring only moldable idiots.

  2. XOM sounds like good buy so long as dividend is safe. From my reading the dividend sounds pretty safe. Am long pioneer resources.

    • They are investing in renewables as well. From a survival standpoint in this political environment it makes sense, but that decision ruined it for me. I dumped my shares.

      • Often, when in doubt get out is a good strategy.

        A few environmentalists” invested in shares of Khosla biofuel darlings Range Fuels, KiOR and Gevo. Range Fuels and KiOR were liquidated in bankruptcy some time ago but Gevo still holds on.

        A $100,000 investment in 2011 in the Gevo IPO is worth about 56 cents today.

    • Long XOM and BP. Once long RDS but those dumb asses decided to double down on GREEN Virtue Signaling and both the bottom line and the dividend went away. In and out of CEO 8+% dividend on a $110 stock. The process of skimming can be very successful.

  3. Good posting, David, and it looks like Kalifornia Gov Newsom agrees with you, at least about future carbon demands. Yesterday Newsom admitted that Green Energy has failed Kalifornia, and was the cause of the rolling blackouts. That the electrical blackouts occurred during a heat wave (this is a recurring heat wave, its name is August) and the greenies had their air conditioners turned off, and the survival fluids started losing their coldness. This event yesterday (not the DNC clown show, the Newsom admission) will have some people having a reality check today. Stay sane and safe.

    • Do you have a source for Newsome saying that? I all I have read is that the clown takes responsibility and wants a study.

      Thanks.

      • Would you please link us to that article, Derg? I’m especially interested in the governor’s admitting “that Green Energy has failed Kalifornia, and was the cause of the rolling blackouts”. I looked for that admission, unsuccessfully.

        NOT implying that the winds dying down and the sun setting, with huge demand and safety impaired grid capacity could not have been better planned for. I am simply missing the guv, or anyone else who is actually working the problem kicking themselves for letting market forces decline state fossil fuel extraction/transportation/storage capacity. After all, they’ve already effectively communized the 10-11 figures worth of voluntarily assumed California (and state and fed offshore) oil and gas asset retirement obligations, accrued for well over a century. Many have now been shirked by the Oxy’s, CRC’s, etc. And even the majors will be foot dragging and skimping for decades, with NO actual cash in fist put back. How much corporate welfare queening is too much? Oh, forgot about the cable tooled open sores still not properly plugged….

        As for natural gas. FYI folks, this pinko commie governor is the first to get real on the heart of ALL domestic natural gas deliverability – storage infrastructure. He is coming down hard on Cal’s wormy storage fields, mostly converted from (often*) hydraulically incompetent antique oil fields, using 40+ year old well construction and safety equipment. New staff with extensive private sector experience, replacing the Ben Dover Barney Fifers who were eased out over the last few years. The operators HATE adopting proven best practices, but Cal will get more gas when they need it, as a result…

    • … this is a recurring heat wave, its name is August …

      I could have used the T-shirt over the last few days.
      We are not Furnace Creek up here in central Washington State,
      but yesterday afternoon the local temp stayed over 100°F for about 4 hours.

  4. Even Governor Newsom has admitted that maybe the Renewable Strategy should be reconsidered, after CA blackouts. Drill Baby Drill!

  5. Let them green journos them fly only on electric planes. Solves the problem, one way or another.

  6. “The long run is a misleading guide to current affairs. In the long run we are all dead.”
    John Maynard Keynes.
    “It’s tough to make predictions, especially about the future.”
    Yogi Berra.

    That said, what is clear is that oil upstream capital expenditure has been insufficient for years (since 2015?) and new oil discoveries are at a multi-decadal low. This situation is likely to continue because the coronavirus-induced global economic crisis is going to be severe and multi-year. That is not a situation that can promote high oil-prices. In a crisis high prices destroy demand and are not sustainable. We have also to consider the changing demographics of most of the world. Many countries with older populations (Japan, Finland, Italy, Spain) are showing a decrease in energy use per capita.

    The last peak in oil production (C+C) was established in November 2018 and predates the COVID-crisis by a full two years. It is likely to remain in place for several years to come, a situation that has no precedent. High oil-prices are likely to return sometime on the future. What is not known is if they will be able to increase oil production above late 2018 levels or not. Peak Oil might be in the rear-view mirror.

    Art Berman has an interesting article about how the Bakken is post-peak:
    The decline and fall of the Bakken: The red queen collapses/

    • “The long run is a misleading guide to current affairs. In the long run we are all dead.”
      John Maynard Keynes.

      That quote just shows that Keynes was a politician, not an economist.

    • The Bakken has been “post-peak” before, it got better. It will remain post-peak unless WTI gets back above $70/bbl. The local prices in the Williston Basin trade at about a $10/bbl discount to WTI.

      When Hubbert published his Peak Oil hypothesis, he estimated that the total recoverable resource for the US was between 150 and 200 billion bbl. Through 2017, cumulative production was 222 billion bbl, proved + probable reserves in existing fields were about 100 billion bbl (40 Bbbl proved, 60 Bbbl probable) and the estimated undiscovered technically recoverable resource was around 160 billion bbl.

      The total recoverable resource was 222 + 40 + 60 = 322 Bbbl plus some fraction of the 160 Bbbl of undiscovered resource… A maximum of 482 Bbbl. In which case Peak Oil was anywhere between the recent past and 2022. However, this only works if the numbers are static. By the end of 2018, cumulative production was 226 Bbbl and proved reserves were 44 Bbbl. The estimates of probable (2p) and undiscovered resource were unchanged… 2p is generally proprietary, so it’s an estimate. And undiscovered resources are a SWAG. When the 2019 numbers are published, cumulative production and proved reserves will increase again. When the 2020 numbers are published they will shrink. These ups and downs are largely a function of the price of oil, and no one honestly knows what the price will be next year, much less over the next 20 years. EIA’s 95% confidence range is anywhere from $20 to $90/bbl by the end of 2021.

      At $20/bbl, the Bakken is a ghost town… At $90/bbl, it’s a boom town.

      • Good, common sense post Mr. Middleton, right up to the coal biz boner. Sooner or later, both the Bakken PDP’s and PUD’s will be produced. Yours as well. And the other categories will certainly ripen, in no small part due to the expertise of you and yours. But timing is all. US oil will remain on life support – neither dead nor alive, and ducking out their Trumpian YUGE asset retirement obligations – until the lower OPEX and CAPEX/boe mideast and FSU oil is produced off. I.e., for another decade at least.

        I’m sure that you’re a good geoscientist, and that you might find a place to hide out for a while. But I’m guessing that whatever concern you’re affiliated with has lost more than 2/3 of it’s market cap over the last 5 years and is getting by on single ply TP. Even f you haven’t yet been skinned on salary/bennies, no way to live….

        • Nobody has ever doubted that oil/gas/coal will run out some day.
          The evidence is that this day is so far into the future that none of us will be alive to see it. Odds our are grandkids won’t be either.

          Oil companies become less valuable when oil prices go down.

          Stop the presses, nobody ever realized that before.

          • “Oil companies become less valuable when oil prices go down.”

            Yes, they do. So, price forecasting is the name of the game. What I am saying is that, since the mideast and FSU can under cut us for at least another decade on OPEX and CAPEX/boe, prices will stay too low for sustained domestic production for at least about that long. Whenever domestic production starts to see any economic daylight, the furriners just open a few chokes, and crowd us out.

            Most current domestic development is just for lease obligations and/or to finish out CAPEX already spent. The market knows this, and this is why domestic E&P market caps are a fraction of those in the late aughts, and will remain so….

          • “Oil companies become less valuable when oil prices go down.”

            Agreed that the name of the game is the price forecast. Domestically, they will remain just low enough to stifle almost all future development plans, for at least another decade. Any time domestic E&P’s see some economic daylight, the mideast and FSU producers, with their step wise favorable OPEX and CAPEX/boe, will just open up a few chokes and drown us out.

            That is why most domestic E&P’s are worth a fraction of their late aught market caps.

            My biggest oilfield achievement was keeping my kids out of it….

      • The right question hasn’t been “how much oil is there” for a long time. The right question is how much oil is there at [what price]?

  7. … the recent drop in upstream capital expenditures makes it fairly likely that high oil prices will return …

    As long as there is any demand somebody will find a way to profit.

    Scott Adams often notes that artists and writers can’t deal with analysis.

  8. ‘Activists alarmed at the urgency of the climate crisis’. Idiocy in one short sentence.

    There is no climate crisis, therefore there is no urgency, therefore no reason for alarm and no need for activists. Why don’t they go home and do something useful?

  9. I bought Kinder Morgan recently. They pay a great dividend and are a major player in pipeline transportation of hydrocarbons.

  10. I don’t think there is ever going to be a decrease in demand for oil until a battery is discovered/invented that meets the following requirements: quick and easy to charge, cheap, holds enough energy to drive a semi truck 300 miles in the dark when it is 50 below outside, safe, plus small and portable. When will that happen? Not in my lifetime.

    Unless the government forces us to buy electric cars using the current battery technology, why would anyone go electric? And without a great demand for electric cars why would demand for oil fall? Once that battery is discovered; everything changes. Our entire electric grid infrastructure will change to accommodate fast charging stations at our homes and elsewhere.

    Irony: We will have to build more coal plants to generate the power needed to displace the gasoline/diesel we are no longer burning in our cars and trucks.

    • Before fracking when it looked like fuel costs might more than double within the near future, I seriously investigated converting a pickup truck to electric.

      We might have had a looming shortage of oil but not of coal. For that reason I thought the price of electricity wouldn’t increase as fast as the price of gasoline. Filling the truck box with deep discharge lead-acid batteries would have resulted in an affordable vehicle.

      Once I realized what was happening with fracking, the electric truck project was quickly forgotten.

  11. Was glad to see that in the same speech Wirth reminded folks that the oil industry saved the whales by replacing whale oil with kerosene for lamps. 🙂

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