A bad track record of diversification and the wrong skill sets in their management teams make the supermajors of ‘Big Oil’ poor candidates to lead the transition to a clean-energy future, claimed a senior financial analyst at Macquarie.
Assumptions that the fossil world's big-five – Shell, ExxonMobil, BP, Chevron and Total – can, or should, assume a leading role in sectors like wind and solar may be wide of the mark, said David Hewitt, head of oil & gas in equity research at the Macquarie Capital unit of the global finance group.
“I’m not convinced Big Oil is the right vehicle to be leading the charge in the energy transition. I’m not convinced they’re ready,” Hewitt told a briefing for journalists in London.
The supermajors’ history of diversification is “rather poor”, claimed the Macquarie analyst, whether into other energy sectors such as coal or nuclear, or more surprising forays such as Exxon’s Scandinavian hotel chain.
More recently “BP spent $8bn on Beyond Petroleum … and wrote down $8bn on Beyond Petroleum”, added Hewitt, who said there was no reason to believe anything would be different with a new charge into renewables.
Macquarie’s analysis of Big Oil’s senior management teams below board level suggests they are still dominated by geologists, geophysicists and chemical engineers, claimed Hewitt, with little sign of reorganisation to “move into business and skills sets beyond what they’ve been doing historically”, and strengthen their capabilities in fields like electrical engineering that are core in wind and solar.
A lack of gender diversity below boards – although improving – further signals an inability to adapt to a changing business environment, he claimed.
Even leaving aside their ability to do so, Hewitt questioned the business case for Big Oil to charge headlong into renewable power, given the far lower returns on offer than in their core markets.
Macquarie Capital alternative energy analyst Keegan Kruger said: “On paper, offshore wind looks like an ideal candidate for oil and gas to sink their teeth into,” citing common factors such as marine engineering and supply chain synergies, and the lower risk profile offered in the production phase of projects.
But Kruger said despite this, and their own large balance sheets, the sector had so far offered only patchy appeal for the supermajors. The scale of opportunities in the market had until now been “too low and too slow”, and the barriers to entry higher and routes to market more challenging than oil and gas players are used to in their core non-power business, said Kruger.
While offshore wind is big, it’s not big enough.
“While offshore wind is big, it’s not big enough.”
The Macquarie analyst said Big Oil may have to take matters into its own hands if it wants to have a decisive impact in a sector dominated by first movers such as Orsted, some of who are reaping the rewards of lucrative subsidies available early in the industry’s evolution.
Kruger said: “If oil and gas is serious about offshore wind as a whole … they should just build a 10GW project in the middle of the North Sea, go merchant, structure the biggest corporate PPAs ... and showcase their ability to manage that production risk.
“That would be a way to gain entry to the sector.”