Op-ed: A $100 billion Big Oil divestiture plan is coming

October 4, 2020

360 News Desk, Industry insights, renewable energy

Royal Dutch Shell

Tore Guldbrandsøy, senior vice president, and Ilka Haarmann, analyst, at Rystad Energy

KEY POINTS

The largest oil and gas companies, including ExxonMobil, Royal Dutch Shell, Chevron and BP, are projected to sell a combined $100 billion in oil and gas assets around the world as they focus on top-performing regions, particularly the U.S. shale, according to a new analysis from consulting firm Rystad Energy.
Climate change and renewable energy investments are forces that these Big Oil firms need to respond to strategically, but their own carbon divestiture campaigns will be motivated by factors distinct from the push from climate activists.

Energy transition has climbed towards the top of the agenda in the boardrooms of the world’s largest oil and gas companies. With electrification and renewable energy on the rise, Big Oil is striving to adapt to a transformation that could eventually render their business obsolete if they don’t latch on to the opportunities it brings. The result could be a massive sell-off of assets as the biggest petroleum players concentrate their oil and gas production to the countries where oil and gas is cheapest and easiest to produce.

The transition to renewable energy poses a threat to oil and gas production in the longer term as solar and wind power is expanding on the energy supply side, while lower-cost electric vehicles and better battery technology are driving big changes on the global oil demand side. Big oil companies have strong skills within energy and own assets globally that they can use to remain competitive as the transition proceeds. Some oil players may also choose to just stick with oil and gas only, but then they clearly need to be among the best in this game.

Regardless of strategy, the big oil companies need to scale down their global presence in oil and gas by focusing on countries with growth potential where oil and gas production can deliver significant cash flow and profit at the lowest possible cost and carbon footprint.

Where $100 billion is up for grabs globally

Our analysis of the geographic spread and need for increased focus for the large listed companies, also referred to as “Majors+” — U.S.-based ExxonMobil, Chevron and ConocoPhillips, and European players BP, Shell, Total, Eni and Equinor — concludes that these eight companies together may want to sell asset worth more than $100 billion to concentrate on their most promising country holdings.

The oil majors have a long history of going wherever there is money to be made on oil and gas, and have established presence in almost every corner of the world. However, competition has stiffened in many countries as national oil companies and governments have taken more control of national resources and the number of small and medium-sized companies has increased. We see this for example in Indonesia and Malaysia, with state-owned companies Pertamina and Petronas, respectively, or in Norway and the United Kingdom, where independents have increased their role significantly.

This trend has been going on for many years, but now the energy transition is putting even more pressure on the majors as they see that renewables will also require a growing part of future investment budgets. Equinor expects 15-20% of its investments to be directed towards new energy solutions by 2030. BP total capital expenditures in 2020 are expected to be around $12 billion, with the majority spent on upstream oil and gas targets, but it plans to increase its investments in low carbon projects to around $3-4 billion a year by 2025 and $5 billion a year by 2030.

for the rest of the story : Royal Dutch Shell