Revisiting The Role of Oil & Gas In Energy Transition

This week we provide a video update on our views of the appropriate role for oil & gas companies as it relates to the so-called “energy transition.” The video is motivated by ongoing commentary, especially from the policy world, as to whether a meaningfully greater percentage of cash flows should be redirected to low-carbon opportunities and away from traditional oil & gas CAPEX or dividends/stock buybacks. This video harkens back to one of our first Super-Spiked posts titled Stop Trying to get Blockbuster Video—i.e., Big Oil—to accelerate energy transition (here).

It remains our view that the single best thing an oil & gas company can do, in particular those based in the United States, Canada, or Europe, is to profitably produce as much oil and natural gas as they reasonably can in order to help meet the energy needs of the world. In the video, we comment on the role new companies—rather than legacy entities—usually play in advancing new technologies or paradigms (e.g., Blockbuster Video vs Netflix, Tesla vs traditional auto OEMs, etc.), but reflect on the “adaptation” pushback we have received. An example of successful adaptation includes the improved online presence of legacy brick-and-mortar retailers after initially struggling with the rise of internet retailing.

None of this is to argue that there is nothing traditional energy companies should be doing as it relates to future energy technologies, many of which are likely to experience significant growth in coming decades. For some companies, there are logical business extension opportunities. It also seems reasonable to allocate a portion of CAPEX to new energies as a modern version of an “exploration” budget, either directly or by participating in a venture capital portfolio.

Finally, we discuss what we believe are the environmental and climate responsibilities of oil & gas companies, including (1) continuing to prioritize health, safety, and the environment (HSE) programs, (2) eliminating Scope 1 emissions, (3) being on a path toward near zero methane flaring/venting/leaks, and (4) helping find solutions to the orphan wells issue in various locations. Ultimately, we believe the world greatly benefits from a healthy US, Canadian, and European oil and gas industry.