Aug. 23, 2021, 6:28 a.m. EDT

Big Oil Looks To Woo Investors Back With Massive Dividends

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Hipple said that savvy long-term investors will continue to shy away from oil and gas majors "unless and until" they fully acknowledge the climate crisis due to the very real risk of stranded assets.

"These investors understand that the oil majors are still investing tens of billions in unnecessary oil and gas infrastructure, ignoring the IEA findings that no additional infrastructure is possible to meet a 1.5 [degrees Celsius] scenario. These investments are likely to become stranded assets, and investors don't want to be left holding the bag."

She certainly has a valid point here.

Last week, the Intergovernmental Panel on Climate Change delivered its starkest warning yet about the deepening climate emergency, saying a key temperature limit of 1.5 degrees Celsius could be broken in just over a decade in the absence of immediate, rapid, and large-scale reductions in greenhouse gas emissions.

U.N. Secretary-General, Antonio Guterres, has described the report's findings as a "code red for humanity," saying they "must sound a death knell" for fossil fuels.

True, U.S. Shale companies are exercising a lot more capital discipline than they have in the past. Shale drillers have a history of matching their capital spending to the strength of oil and gas prices; However, Big Oil is ditching the old playbook this time around. Rystad Energy says that whereas hydrocarbon sales, cash from operations and EBITDA for tight oil producers are all likely to test new record highs if WTI averages at least $60 per barrel this year, capital expenditure will only see muted growth as many producers remain committed to maintaining operational discipline.

However, the lion's share of these investments is still flowing towards developing new oil and gas assets, with a minuscule fraction going towards sustainable energy.

Hipple is hardly alone in her dim view of legacy oil and gas companies.

"We frankly just don't think these are very good businesses. With the oil companies, we still just don't think they represent good long-term businesses. They don't generate consistent returns on capital or cash flow, albeit at the moment they look to be in a pretty good place," David Moss, head of European equities at BMO Global Asset Management, has told CNBC.

Moss, in particular, faults European energy majors which are currently generating "very strong" cash flows amid a sustained rebound in oil prices but many are choosing to keep a tight lid on spending rather than invest in sustainable energy.

It appears that Wall Street is now doing a 180 and increasingly turning bearish on oil and gas.

In a recent report, Standard Chartered says Wall Street is plain wrong in its expectations of high oil prices because "...a significant amount of money has already entered the market in the Wall Street-generated belief (mistaken according to our analysis) that the balances are much tighter and justify USD 80-100/bbl."

By Alex Kimani for Oilprice.com

COMTEX_392050359/2559/2021-08-23T06:27:31

Is there a problem with this press release? Contact the source provider Comtex at editorial@comtex.com. You can also contact MarketWatch Customer Service via our Customer Center.

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