Oil and Gas

These Oil Majors Are Shifting Focus, Pumping Billions Into Renewables

In March, stay-at-home orders to fight the spread of COVID-19 cut into oil demand in a big way.

And the pandemic has only continued to do so.

Demand continues to crash because folks are still staying home. And at the same time, solar and wind energy prices continue to undercut their fossil fuel counterparts.

Is this oil’s death blow?

Not quite. But it is a big wake-up call for oil companies.

Some are responding by cutting costs and slashing investments in new fossil fuel exploration and production projects.

Others see the big-picture transition away from fossil fuels and toward renewables. Those that do are starting to pour money into clean energy. And a lot of it.

Let’s look at all the supermajors and see which companies are doing what.

Pumping Billions Into Renewables

Both Chevron Corporation (NYSE: CVX) and Exxon Mobil (NYSE: XOM) don’t seem to have much interest in renewable energy or other clean technologies. Neither company has a plan to move in that direction.

However, Exxon is focused on reducing greenhouse gases. To that end, it is investing in carbon capture and storage technology and advancing biofuels.

But that is where that disinterest ends. The rest of the supermajors have plans to invest in renewable technologies.

In 2014, Italian oil and gas giant Eni SpA (NYSE: E) opened the world’s first biorefinery. The company converted it from an oil and gas refinery. It now produces green jet fuel, naphtha and diesel.

Eni is also focused on growing its onshore and offshore wind farms. It wants to reach 1 gigawatt (GW) of renewable capacity by 2021 and 5 GW by 2025.

Total SE (NYSE: TOT) is the French oil and gas supermajor. It has integrated oil and gas operations worldwide.

Total has made several strategic investments in renewables. Most notably, it spent $1.4 billion acquiring 60% ownership of SunPower Corporation (Nasdaq: SPWR).

It plans to be a global leader in solar power. It has 1.6 GW of solar capacity already and plans to bump that to 5 GW by 2025.

Total is also interested in electric vehicles. In 2016, it spent $1.1 billion on Saft, a French battery manufacturer.

Finally, it spent $224 million on Lampiris, a green power utility in Belgium. It paid $1.7 billion for a 74% stake in the French utility Direct Énergie. That purchase makes Total one of the biggest utilities in France.

Repsol SA (OTC: REPYY) is a large Spanish oil major that is also moving into renewables.

Last year, it set a net-zero emissions target date of 2050 and was the first major oil company to do so.

The company is writing down its oil asset value by $5.7 billion. Repsol’s refocused its oil production on higher-value wells. It’s also planning to operate in fewer countries.

Repsol is funneling cash from its oil business into expanding its renewable portfolio. It currently owns and manages 2.95 GW of solar and wind farms.

It has plans to expand that to 15 GW. It wants to start producing green hydrogen with a target of 1.2 GW by 2030. Repsol claims it can make green hydrogen 30% cheaper than any other major.

The first supermajor to invest in renewables was BP (NYSE: BP). It started investing in solar and wind farms back in 1980.

BP currently owns wind farms in the U.S., with more than 2.2 GW of capacity. And it’s made several investments in EV charging companies.

In Britain, it plans to install charging points at its 1,200 gas stations. It now owns Chargemaster, the leading EV charging network in the U.K., with 6,500 charging points.

Royal Dutch Shell (NYSE: RDS-A) wants to slash its oil and gas production costs by up to 40%. The money it saves will be used to refocus its business on renewable energy and electric power.

Project Reshape, the company’s internal cost-cutting review, will be completed by the end of this year. It’s the largest financial overhaul in the history of the company.

The company cut its 2020 capital expenditures by 20% to $20 billion. And it’s reducing the number of oil refineries it owns from 17 to 10. It already has sales agreements for three of them.

It’s now spending up to $2 billion per year in renewable energy investments. Plus, it’s opening hydrogen refueling stations in Europe, Vancouver and California.

It’s also starting to install EV fast-charging ports at its network of more than 45,000 petrol stations. It now has the largest network of EV charge points in Western Europe.

Shell is also investing in wind projects worldwide. Its North Sea wind farms alone supply enough power for 1 million homes.

Like Repsol, it has acquired energy suppliers in the U.S. That enables Shell to provide renewable energy directly to its customers.

Where to Invest

From an investment standpoint, I like the fact that five of the seven supermajors understand the energy transition. They are protecting shareholders by investing in renewable energy and EV charging infrastructure.

Those are the opportunities I’m interested in following, and you should be too.

Good investing,

Dave