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Exxon Mobil’s Climate-Conscious Deal: A Test for Shareholders

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Exxon Mobil’s Climate-Conscious Deal: A Test for Shareholders

Exxon Mobil’s Bid for Pioneer Natural Resources Raises Questions for Shareholders

Introduction: Exxon Mobil’s $60 billion bid for Pioneer Natural Resources would significantly expand the top U.S. oil producer’s presence in the country’s largest oilfield. However, this move has raised concerns among shareholders regarding Exxon’s transition to low-carbon energy.

Advanced Negotiations and Acquisition Uncertainty

Negotiations between Exxon and Pioneer are currently at an advanced stage but have not yet resulted in an agreement for the acquisition of Pioneer, the largest oil producer in the Permian Basin.

Exxon’s Consolidation Strategy and Climate-Aware Investors

The proposed deal highlights the Permian Basin’s significance and suggests that Exxon, valued at $436 billion, is prioritizing its core business and pursuing a strategy of consolidation. This approach aligns with the interests of climate-aware investors, bankers, and industry analysts who recognize the importance of efficiency and the tapping out of growth.

Andrew Logan, senior director of oil and gas programs at Ceres, a nonprofit organization focused on climate change, believes that Exxon’s consolidation strategy makes sense for climate-aware investors. Despite the global pressure for corporations to shift away from fossil fuels, Exxon has not heavily invested in renewables. Nevertheless, shareholders have benefited from the company’s stock price more than doubling since early 2021.

Decreased Investor Pressure and Enabling Behavior

Jim Rossman, global head of shareholder activism and advisory defense at Barclays, notes that activists are now criticizing companies for not focusing on their core business and urging them to separate their renewable businesses. He believes that Exxon’s consolidation and efficiency-focused approach may actually be attractive to climate-aware investors.

However, Mark van Baal, founder of climate investment group Follow This, argues that investor pressure has decreased, and big investors are enabling companies to backtrack on climate goals. This may be due to the geopolitical tensions in Ukraine, which have heightened energy security fears and caused shareholders to prioritize short-term returns over long-term climate objectives.

Exxon’s Lagging Position and Net-Zero Plan

Despite committing to spending $17 billion on various initiatives to lower its carbon footprint, Exxon remains a laggard among its global peers. An analysis by the Climate Action 100+ group in October 2022 revealed that 73% of the company’s capital expenditure was not aligned with its chosen International Energy Agency scenario benchmark.

Engine No. 1, an investment firm that gained three board seats at Exxon in 2021, argued that short-cycle Permian assets make more sense in the context of a long-term energy transition than costly projects with delayed returns. While Engine No. 1’s campaign highlighted climate concerns, economic arguments played a significant role in its success.

Activist Campaigns and the Focus on Returns

The recent activist campaigns by investors such as Starboard Value, Ancora Group Holdings, and Elliott Investment Management suggest that climate change may not be the primary motivator. These investors have urged companies like Algonquin Power & Utilities and NRG Energy to focus on maximizing returns rather than their renewable energy divisions or climate-related initiatives.

Similarly, Third Point has pressured oil major Shell to consider breaking up for financial reasons rather than climate change concerns.

Conclusion

The bid by Exxon Mobil for Pioneer Natural Resources has sparked discussions among shareholders about Exxon’s commitment to low-carbon energy. While some climate-aware investors see value in Exxon’s consolidation strategy and focus on efficiency, others argue that investor pressure has decreased, allowing companies to prioritize short-term returns over long-term climate objectives. Regardless, Exxon’s position as a laggard in the transition to low-carbon energy remains a concern for many stakeholders.