US Oil Giants Are Cleaning Up While Promising Higher Returns

Oil giants are betting big on carbon capture. US oil giants Chevron Corporation CVX and Exxon Mobil Corporation XOM have both laid out ambitious green transition strategies after the path has been laid out by their European rivals such as BP p.l.c. BP and Shell (NYSE: RDS-A)(NYSE: RDS-B) who are investing heavily in renewables, electric vehicles and clean power generation. The US supermajors have remained largely focused on their core oil and gas businesses while investing in technologies to slash emissions in a bet the world will continue relying on oil and gas for decades, even as governments fortify regulations that aim to reduce carbon emission.

Chevron's message

In its new emissions strategy, Chevron has pledged to expand its investment to more than $3 billion by 2028. On Tuesday, the oil giant pledged to power more of its operations with renewable energy, slash methane emissions from its shale operations and invest more than $1 billion to capture and store carbon as part of the effort to clean up its operations.

Additionally, it will slash capital expenditure on new oil and gas projects to about $14 billion to $16 billion a year through 2025 which is a dramatic difference from its past years where annual spending soared to $30 billion. Altogether, the big picture that Chevron wants to portray can be summarized by lower carbon emissions and higher returns.

While Chevron is increasing its low-carbon spending, the percentage is still tiny as the target of $375 million in annual spending on efforts to reduce its carbon footprint is less than three percent of total capex.

Exxon's efforts

Chevron decided to intensify its investment to lower carbon emissions just days after its rival laid out its own plans to spend also approximately $3 billion on a newly formed business focused largely on carbon capture and storage. Exxon also deferred its ambitious oil and gas production growth targets as its CEO emphasized golden opportunities in carbon offsets and partnerships with venture funds to finance carbon capture. The oil giant is betting big on the carbon capture market that is expected to reach $2 trillion by 2040.

Growing divergence between European and US strategies

The pandemic brought unprecedented challenges to an already troubled oil and gas industry that needs to reinvent its core business model. Not only does it have to navigate the COVID-19 challenges and demand disruption, but it also has to adapt to a carbon-constrained future and adhere to upcoming regulations from the Biden administration whose policies support renewable and clean energy. But, the oil giants aren't burying their heads in the sand, but they are adapting to a low-carbon future with a major investment in technology to capture and sequester carbon emissions as opposed to its European rivals who are pivoting to become big energy companies and invest more heavily in renewables. Although the media had applauded European efforts, shareholders at BP and Shell appear unconvinced that the pivot to renewables will generate long-term profitability. Therefore, the decision of US oil giants to stick to what they know best and using technology to address climate change makes sense from a business point of view.

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