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Thursday, October 11, 2018

Strategic CSR - Exxon

The article in the first url below explores the recent struggles of Exxon:
"Exxon faces a number of challenges, including investigations of its accounting and tax practices as well as lawsuits by cities and states seeking funds to pay for the effects of climate change. Its biggest problem is one the giant has seldom faced in its 148-year history: It isn't making as much money as it used to."
Up until 2008, Exxon was the largest publicly-traded firm in the world. Today, it is performing at a much lower level. Whether for political (sanctions), social (climate change legislation), or economic (lower profits) reasons, the firms is a shadow of its former self:
"In 2016, S&P Global Ratings stripped Exxon of the triple-A credit rating it held since 1930. It was one of only three companies to hold the distinction at that time, along with Microsoft Corp. and Johnson & Johnson . While Exxon once ranked as the world's largest company by market value, it was 10th as of June 30, less than half the size of Apple Inc."
Given the reality that a significant proportion of fossil fuel reserves will need to remain in the ground if we are to survive as a species, you have to think that Exxon (and CEO at the time, Rex Tillerson) is missing the bigger picture. While bad luck has played its part, strategic vision has also been lacking:
"As [oil] prices rose to all-time highs of almost $150 a barrel, Mr. Tillerson led the charge to chase more expensive prospects that could meet the world's thirst for crude. He looked to Canada's oil sands, natural gas fracking and even Russia's Arctic, all of which required higher prices to be profitable. Those efforts largely failed. Exxon's production has declined in the past five years, and the company has delivered lackluster financial results. Today, oil prices are around $74 a barrel. … its U.S. drilling business has lost money in 11 of the last 15 quarters."
While other energy companies are increasing their investment in low-carbon or alternative energies (Shell, for example, is investing heavily in natural gas), Exxon is doubling down on oil. As the price per barrel fluctuates, the extent to which the firm is exposed has become apparent. Moreover, the working assumption internally is that Exxon will be able to extract all of its known reserves, in direct contradiction to what climate science is telling us. The result is a sense that the firm has seriously misjudged the market:
"Shareholders haven't responded with enthusiasm. The price of crude is up about 60% in the past year, but Exxon shares are up less than 5%. … Meanwhile, rivals such as Shell, BP and Total have diversified outside of fossil fuels."
The article in the second url below suggests that at least Exxon understands it is losing the battle of perceptions:
"Exxon Mobil will donate $1 million to a campaign promoting a tax to curb emissions of planet-warming carbon dioxide to U.S. lawmakers and the American public. … The plan advocates for placing a fee on carbon emitted by companies, which would start at $40 per ton and rise gradually. Revenues from the tax would be returned to Americans in the form of regular, automatic dividend payments."
Although, $1 million might only be a rounding error for a firm the size of Exxon, and there is plenty of evidence to suggest the firm sees this move as a quid pro quo and has not significantly shifted its position:
"The final pillar of the plan calls for rolling back the Environmental Protection Agency's authority to regulate carbon emissions and repealing rules like President Barack Obama's Clean Power Plan, which the Trump administration is already in the process of dismantling."
Take care
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Exxon Is Running Low
By Bradley Olson
July 14-15, 2018
The Wall Street Journal
Late Edition – Final
Exxon Mobil pledges $1 million to campaign to promote carbon tax
By Tom DiChristopher
October 9, 2018