Big Oil is desperate for new discoveries

2020 is a watershed year for the fossil fuel industry. Experts warn that reserves worth nearly $900bn, about a third of the value of major oil gas companies, could become worthless in the face of the global COVID-19 epidemic, severe demand shocks a shift to renewable energy.

Even the big oil companies appeared to be accepting their fate, with Ben van Beurden, chief executive of Royal Dutch Shell, saying that oil demand had already peaked. Meanwhile, BP, which doubled its drilling activity in the wake of the historic UN climate change agreement in 2015, finally let go: "Concerns about carbon emissions climate change mean that the world's oil reserves are becoming less less likely to run out." BP continued to announce writedowns, one of the largest among the oil majors, after cutting the value of assets by up to $17.5bn acknowledging that the outbreak would accelerate the market shift away fossil fuels.

Ironically, however, this turn of fate could mean that, rather than burying its vast reserves of oil gas deep underground, the world is likely to run out of these commodities in our lifetime.

Rystad Energy, a Norway-based energy consultancy, has warned that, in addition to many undiscovered oil resources, the big oil companies' proven reserves could run out in less than 15 years unless they quickly find more commercial discoveries. The production represents proven oil gas reserves held by Exxon Mobil, BP, Shell, Chevron, Total Eni.

In 2020, the big oil companies' proved reserves fell by 13 billion barrels of oil equivalent, 15 percent of their underground inventory levels. Rystad now says the remaining reserves will be exhausted in less than 15 years

The main reason is the rapid decline in exploration investment.

Global oil gas companies have cut capital expenditure by a staggering 34 per cent in 2020 in response to shrinking demand investor concerns about the sector's persistently low returns. the trend shows no signs of slowing down, with proven reserves of 1.2 billion barrels in the first quarter, the lowest in seven years, according to Rystad.

ExxonMobil's proved reserves fell by 7 billion barrels in 2020, 30 percent 2019, after steep declines in Canadian oil sands U.S. shale gas reserves.

Shell's proved reserves, meanwhile, fell 20 per cent to 9bn barrels last year; Chevron lost 2 billion barrels of oil equivalent due to impairment charges, while BP lost 1 billion barrels of oil equivalent. Only Total Eni have avoided a decline in proven reserves over the past decade.

Climate action has also had negative effects.

Changes in US policy, combined with feverish climate activism, are likely to make it hard for Big Oil to return to the exciting days of drilling. The US has rejoined the Paris climate agreement, scupped a controversial oil pipeline, suspended fossil-fuel exploration leases on public lands, proposed unprecedented investment in clean energy started to reverse many previous regulations.

In April, the AOL Virtual Climate Summit unveiled an ambitious 10-year climate plan that aims to cut U.S. greenhouse gas emissions by 50 to 52 percent by 2030. That represents a near doubling of the 26-28 percent reduction the United States committed to under the 2015 Paris Agreement.

The United States has proposed a carbon tax, though that policy is uncertain. Meanwhile, BlackRock, one of the world's largest asset managers, has been ramping up its investments in oil gas divestitures. Back in 2019, BlackRock announced its intention to increase ESG(environmental, social governance) investments more than tenfold, $90 billion to $1 trillion over 10 years.

Now the firm is rolling out targets for climate action wants the companies it invests in to disclose plans to achieve a net zero economy. The company defines a net zero economy as achieving net zero greenhouse gas emissions by 2050. BlackRock plans to put oil gas companies in a bind by developing a "temperature calibration indicator" for its publicly offered stock bond funds to specify temperature calibration targets, including products that align with the net zero program.

In addition, climate activists, including the Sierra Club, have been calling emailing BlackRock Vanguard, urging them to vote against ExxonMobil's chief executive, Darren McClellan. The club said ExxonMobil's board "needs a complete overhaul" to better manage climate risk steer the company toward a low-carbon future.

Oil gas company business abnormal.

At IHS Markit's CERAWeek energy conference in April, major oil companies said they want to focus less on reducing oil gas production less on reducing the impact of carbon greenhouse gas emissions. Darren? Mr Woods Occidental's Vicky Hollub argue that reducing carbon emissions fossil fuels, rather than actually using them, is the better way to tackle climate change.

Interestingly, both CEOs stressed that the world still needs oil gas that governments need to focus on slowing global warming using technologies such as carbon capture storage (CCS) rather than attacking fossil fuels. Yet even ExxonMobil, one of the bigger hawks, has markedly changed its tune a few years ago.

During the company's 2021 investor day, Darren Sutton said, "We have a lot of money to spend. Mr Woods outlined the company's energy transformation strategy, which includes cutting oil gas production growth increasing cash flow to support a growing dividend. ExxonMobil said it plans to maintain production at 3.7 million barrels a day 2020 to 2025, down 26 percent the 5 million barrels a day 2025 forecast it issued a year ago.

All in all, it's hard for Big Oil to continue business as usual at the moment, despite the recovery in oil prices.

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Source: International Petroleum Network