CA - Exxon Mobil: Obsolete Business Model Means Challenges Ahead

2024-04-08 09:00:00 ET

Summary

• Exxon talks about molecules (fossil fuel, carbon) versus electrons (electrification); Exxon thinks that electrons are not a solution for decarbonization.
• Exxon is using electrification to achieve net zero Scope 1&2 emissions by 2030 in its Permian operations.
• Exxon posits that carbon capture will resolve carbon emissions from oil & gas use; there is no evidence that this is feasible.
• Insistence on a long term future for oil & gas and Governments funding carbon capture leaves Exxon’s business model exposed.
• Long term investors need evidence for a business model consistent with a future. Exxon is not providing this.

We are at the beginning of a “ once-in-a-century ” switch in two key areas of human endeavour, which both involve the fossil fuel industry. These are energy/power and transport, both of which are experiencing an amazing switch from carbon-based molecules to electrons. Everything is becoming electrified and this means the end of fossil fuels. From left field comes an urgency that is accelerating the shift. Normally transitions occur because a better and cheaper solution arises and this is the case for electrification in both power and transport, but the accelerant is that the status quo (fossil fuel based power and transport) is now clearly changing the climate of our planet in a disastrous way. There is a lot of change happening, but as often happens at times of great change, some of the major status quo players are resisting the changes because they require the end of their core business. I’ve written a lot about Toyota ( TM ) which is spearheading the attempts to stop transport being electrified. Here I take another look at Exxon Mobil ( XOM ) as a key player in oil & gas exploitation. It appears to me that Exxon Mobil is behaving as if it refuses to accept the end of the fossil fuel era at a time when I believe it is clearly both necessary and also happening. Investors might reflect on how resistance to change will play out when considering investment in, or divestment from, holding XOM stock. The story has the hallmarks of Kodak, which invented the digital camera and chose not to develop it, with unhappy outcomes for Kodak. Note that my comments relate to long term investment. Traders and those using technical analysis have a different basis for investment, which is relevant for a shorter term view that is not focussing on the company’s longer term prospects.

Exxon’s role as a key influencer

According to company documents published by the Wall Street Journal, around 50 years ago Exxon scientists recognised the dangers caused by burning fossil fuels. The company ignored and sought to suppress this know-how because it required Exxon to reconsider its role as a key company involved with fossil fuel exploitation. Today Exxon faces many law suits concerning its role in seeking to prevent action on climate. The latest development in this story sees Exxon attacking in the courts those seeking it to address its emissions. I’m not convinced that this is a good idea, because it elevates the issues about failing to address the climate emergency. It isn’t clear to me that Exxon can win this battle....

For further details see: