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Oct. 31, 2016 08:20AM EST
Big Oil Is in Big Trouble
Oil Change International Oil Change International
By Andy Rowell
Something significant happened on Friday that warrants more than just a
few column inches in a newspaper.
With the most divisive presidential election in U.S. history just days
away from concluding, it is easy to understand why more is not being
made of the news, but just to tell you something seismic happened on
Friday last week.
The world's largest listed oil company, Exxon, announced that it was
going to have to cut its reported proved reserves by just under a
fifth—by 19 percent.
It would be the biggest reserve revision in the history of the oil
industry. It is yet another sign that Big Oil is in big trouble.
For years people have been warning that Big Oil's business model was
fundamentally flawed and was not only putting the climate at risk, but
millions of dollars of shareholders' money.
For years the industry's critics warned the industry was ignoring the
risks of climate change and was just caring on drilling regardless.
But the oilmen did what the oilmen do: find oil and gas, no matter the
And the worst oil company has been Exxon which for decades has denied
climate change and the impact that climate change will have on its business.
For decades it could have invested wisely in renewables but it carried
on looking for oil and gas—including unconventional oil which is even
more carbon intensive than conventional oil. Its critics warned this was
pure folly: but the oilmen carried on drilling anyway.
Big Oil is used to doing things its own way.
The warnings have kept coming, but the boys from Exxon didn't listen.
Oil Change International, 350.org, Carbon Tracker and many others in the
#keepintheground movement have been saying for years that large swathes
of oil reserves must stay in the ground.
They warned that fossil fuel reserves will become "stranded assets."
Exxon often dismissed its critics as irrelevant lentil-eating, sandal
wearing hippies, who wanted to take humanity back to the stone age.
And it carried on drilling. And it dismissed the fact that any of its
assets could become stranded.
But then came the Paris agreement on climate change last December. "With
the Paris agreement on climate ratified in December 2015 … no company
has more to lose than Exxon," noted the Chicago Tribune in a great
article written last Friday entitled, Exxon enters no man's land.
The Chicago Tribune continued:
"Big oil companies have been solid investments for years, with a
deceptively simple business model: Find at least as much new oil as you
sell, book those barrels as future sales and reinvest in the hunt for
new reserves. That made sense as long as oil prices went up, but it
locked companies into a vicious cycle of replenishment, leading them to
search for ever more extreme, and expensive, sources of crude oil in the
Arctic and beneath the oceans."
And it added:
"Cheap oil has stopped that business cold and the threat of climate
action raises fundamental questions about whether it'll ever be viable
The issue of long term viability has been raised by numerous
organizations over the last eighteen months too. Last year the energy
watch-dog, the International Energy Agency, argued that two thirds of
known reserves would have to stay unburnt, if we are to keep climate
change to the limits agreed in Paris.
But Exxon carried on drilling.
Last year Citigroup issued a report warning policies to limit climate
change could render vast swaths of oil companies' reserves worthless,
leading to trillions in losses.
But Exxon ignored the warnings.
In May this year, the London-based Chatham House warned in a report,
entitled The Death of the Old Business Model, that the world's largest
oil companies "Faced with the choice of managing a gentle decline by
downsizing or risking a rapid collapse by trying to carry on business as
Importantly, most of Exxon's de-booked reserves, about 3.6bn barrels,
will be at the company's dirty Kearl oil sands project in Canada. The
reduction would account for over three quarters of the reserves. Not
only are tar sands very energy intensive, but they are expensive to produce.
In a low oil price, carbon-constrained world, they are stranded assets.
"For the oil sands, this is a tipping point," argued Andrew Logan,
director of the oil and gas program at the ethical investment
organization, Ceres. "Why would any company invest billions of dollars
in a new oil-sands project now, given the near certainty that the world
will be transitioning away from fossil fuels during the decades it will
take for that project to pay back?"
Indeed, two days before Friday's announcement an article on CNN Money
noted just how much trouble the oil giant was in: "Exxon's stock is down
17% from its 2014 peak amid the crash in oil prices. The oil giant's
profits have plunged to 17-year lows and its once-perfect AAA credit
rating has evaporated."
It quoted Tom Sanzillo, former deputy comptroller of New York State and
now head of finance at the Institute for Energy Economics and Financial
Analysis saying the company was in the middle of an "irreversible decline."
Friday's announcement is further evidence that we are witnessing the
beginning of the end of the oil age.
And the great carbon dinosaur Exxon is slowly dying before our eyes.
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