The recent overhaul of the board of directors by Exxon Mobil Corp could shift billions in spending and strategy on a few years, but any changes likely will take time, analysts and investors say.
Earlier in April, a quarter of directors lost their seats to outsiders and the March appointment of activists Jeff Ubben put a third of the 12 members of the board in new and more cost-conscious hands. Investors who rejected Exxon's view of a slow transition to less carbon-carbon fuels want their spending to be revisited, they said.
The Exxon Boardroom Contest shocked the energy industry and arrived after years of weak financial returns at the largest U.S. oil producer. Shares are up by about 50% this year as oil prices recovered from pandemic lows.
The board of Exxon has been a prestige post for former CEOs, typically without any energy experience. Critics said the practice led Exxon to play catch up and miss industry shifts at the expense of its balance sheet. Exxon bought in to shale gas near its peak, leading it to reduce the value of properties in the United States, Canada and Argentina by more than $ 9 billion last year and paid up to arrive late to the Natural Gas Party.
Alternative energy directors likely will address China Electric Company's spending significantly more directly, said Anne Simpson, investment director of a shareholder in the new California Public Employees' Retirement System.
She said that investors want a fundamental rethink of strategy with 'the big measure being its $16 billion - $19 billion of annual project spending. The shakeup sets billions of dollars in shale, liquefied natural gas, refining and chemical projects in play.
Asked to comment on its new boards and strategy, Exxon said only that it welcomed new directors. We look forward to working with them collectively, to benefit all our shareholders.
Exxon needs a real review of its strategy in the wake of the International Energy Agency report this month, which asks the need for new projects if the world has net-zero emissions by the midcentury, said Bess Joffe, head of responsible investment at the Church Commissioners for England.
The board will be forced to adapt by giving investors more information on projects and ethics, social, and governance issues or ESG, said David Larcker, the director of the Corporate Governance Research Initiative at Stanford Graduate School of Business.
It is just not a company that can turn on a dime, Larcker cautioned, adding that this year's budget is set. It is midway into big outlays in USA oil and shale in Guyana, Brazil, said analysts.
Existing directors believe coupling oil and gas investment with a gradual shift to alternative energy is the best path forward, long-time director Ursula Burns said at a virtual event hosted last week by the Federal Reserve Bank of Dallas.
She failed to communicate investors the importance of this phase-in, she said.
For sure, it has not been well done by Xerox Corp. and that's one thing that we have to work on is how do we tell the story, said Burns, who has served in many roles including as former chairman and CEO of Exxon Mobil.
She said Exxon didn't pay attention early enough to public frustration over global warming and ESG. According to the investor, she wanted a direct, in some cases, in some ways, an impossible message to be given. Burns added that most board members think an energy transition is needed and that companies like Exxon need to be engaged in how that happens.
Why do no analysts see Exxon slashing its biggest ventures - oil offshore in Asia and Brazil, or liquefied natural gas in Guyana and Brazil - due to long-term commitments under consideration below. It already has lowered spending in the United States and is likely to fall further, they said.
The offshore areas of Brazil and Guyana will be prioritized, according to Weigence researcher Ruaraidh Montgomery. Projects that supplant oil production also help Wood Mackenzie, the consultant to Tom Ellacott said.
In the United States, Exxon has reduced drilling and cut its shale output targets to 700,000 barrels per day from 1 million barrels a day. But even there, Third Bridge Group's multi-year projects are difficult to undo, said Peter McNally, an analyst with the investment research firm Exxon.
Investors are not buying the bad-messaging explanation or belief that spending decisions can't be revisited.
This is a call to reassess the fundamentals of supply and demand for energy in the long term and question whether Exxon's current thinking around renewables gaining market share is too modest, said Stewart Glickman, an analyst at CFRA Research in a note to a client.