Embrace 2C climate target to boost value, oil majors told

Limiting exploration in line with climate goals makes financial sense, says Carbon Tracker ahead of ExxonMobil, Chevron AGMs

Tar sand is one of the most expensive and carbon-intensive sources of oil (Flickr / Howl Arts Collective)


Limiting oil exploration is not just good for the climate, it is good for investors.

That is the conclusion of analysis from Carbon Tracker ahead of key shareholder votes at ExxonMobil and Chevron AGMs this month.

At today’s prices, it found the seven biggest oil majors’ portfolios would be worth around US$140 billion more if they stuck to projects compatible with a 2C warming limit.

“A lot of the socially responsible investors we were speaking to wanted to know what an oil company would look like if it was managed in line with a 2C business model,” report co-author Paul Spedding told Climate Home.

“The concern was from management: if we stop growing, we will stop adding value. We wanted to see if it was true or not. Actually, there was surprisingly little difference between a 2C business model and a growth model.”

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The Paris Agreement signed by 175 world leaders in April aims to hold global temperature rise “well below 2C”. That requires carbon-cutting regulations and technologies to be ramped up, slashing demand for fossil fuels.

Coal, oil and gas producers continue to forecast carbon budget-busting demand growth for their products, particularly from Asia.

Yet recent low commodity prices have shown the downside of such bullish projections, driving dozens of coal companies into bankruptcy. Czech miner OKD is the latest to file for insolvency, following US giant Peabody.

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On the oil and gas side, some $380 billion worth of projects have been cancelled or deferred since late 2014. High cost ventures in the Arctic, Canada’s tar sands or Venezuela’s extra heavy oil were first for the chop.

With Saudi Arabia maintaining cheap production and Iran and Iraq reentering the market, low prices could persist, with many analysts predicting $50-80 a barrel in the medium term.

Carbon Tracker estimates business as usual will only deliver better returns than a 2C scenario if oil prices soar above $120/bbl for a sustained period.

The oil companies should be preparing for managed decline, Carbon Tracker’s Spedding argued. “It makes financial sense – you don’t need an environmental reason.”

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It is why shareholders are urging ExxonMobil and Chevron to “stress test” their business models against the 2C goal.

The same time last year, only 4% of Chevron investors supported a similar resolution, while Exxon blocked the vote entirely. Chevron’s board dismissed the analysis as “flawed, if not dangerous”.

Since then, Financial Stability Board chair Mark Carney has spoken out about climate risk, pushing it up the mainstream agenda.

Norway’s $900 billion sovereign wealth fund, the seventh largest investor in both firms, added its weight to the campaign this week.

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