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Re-Ranking the Oil Majors: One Year Hence

By Gerard Kreeft

In August 2020 Africa Oil + Gas Report reported its First Ranking of the Oil Majors: a summary of their energy transition strategy and vision. Fast forward to August 2021. The speed and changes taking place are breathtaking. Read on.

Two Contrasting Visions

(1) An Oil Sands‘ Moment

The Caspian Region and in particular Kazakhstan since the break-up of the Soviet Union has been a key frontier for the oil majors. Creating oil wealth and cashflow which has helped bankroll Tengiz, Kashagan, and Karachaganak. Major projects requiring great risks, and garnishing great financial wealth which in turn generated cash flow for the majors to develop projects around the globe, including Africa.

This is about to change. WoodMackenzie is predicting that by 2030, the Upstream Development Capex in the Caspian Region will drop 50% from an annual high of $20Billion in 2018.

WoodMac reports that most of the largest pre-FID (Final Investment Decisions), both brownfield and greenfield,  do not generate an  IRR(Internal Rate of Return) above 20%. Tax issues, cost overruns, and project delays are key constraints. Add carbon neutrality to the mix and you have the ingredients for a perfect storm.

When the Soviet Union broke up in the early 90s and Kazakhstan emerged as a new oil province, both Chevron and ExxonMobil, seen as ambassadors of US goodwill, gained access to the country’s black gold. Chevron’s prize was operatorship of the Tengiz field (50%) and ExxonMobil gained a 25% share. Chevron also has an 18% share in the large Karachaganak Gas Field. ExxonMobil has a 16.81% share of the troubled Kashagan Project. 

What once was a sign of great wealth- Kazakhstan’s oil riches- could turn sour very quickly. Both Chevron and ExxonMobil, key developers of Kazakhstan’s prosperity, are also the two key oil majors lacking any serious decarbonization and energy transition plans. While this is most relevant for the Caspian, it is also a warning for Africa, where both companies have major projects. 

The Tengiz Project deserves some attention given that it in a time of Chevron’s austerity it is swallowing up 70% of the international oil and gas budget.   Tengiz is currently producing560,000 barrels per day (BPD) and is being expanded by some 260,000BPD. Total costing is estimated at $45Billion. 

The expiry date for the Tengiz concession is 2033. What will happen then? Given the huge costs, high sulfur-based oil, and low chance of carbon neutrality, Tengiz could become a vast stranded asset.  To date, Shell has abandoned two Kashagan projects in Kazakhstan because of high costs. Tengiz was, for most of its duration, Chevron’s crown jewel, providing cash to developing assets elsewhere including Africa. Given Chevron’s current strategy it can only hope that Tengiz can continue to squeeze out more oil. 

TOTALEnergies faced a similar problem but choose an alternative strategy. In the summer of 2020, the company took the unusual step of writing off $7Billion impairment charges for two oil sands projects in Canada.  Both projects at the time were listed as ‘proven reserves’. By declaring these proven reserves as null and void, TOTALEnergies, with one swoop of the pen, cast aside the Petroleum Classification System which was the gold standard for measuring oil company reserves.

The company simply decided that these reserves could never be produced at a profit. Instead, TOTALEnergies has substitute renewables as reserves that can be produced profitably.

TOTALEnergies strategy is based on the two energy scenarios developed by the International Energy Agency (IEA): Stated Policies Scenario (SPS) is geared for the short/ medium term; and Sustainable Development Scenario(SDS) for medium/long term.  

Taking the “Well Below 2 Degrees Centigrade” SDS scenario on board, TOTALEnergies has in essence taken on a new classification system. By embracing this strategy the company is the only major to have seen the direct benefit of using the Paris Climate Agreement to enhance its renewable energy base.

In essence, the oil majors have two contrasting visions: a continued embrace of only oil; or a vision of renewables- produced at an IRR rate- formerly only thought possible from fossil fuel production.

If, as WoodMac predicts, major oil and gas projects will face enormous economic and environmental hurdles in  Kazakhstan, this could have a knock-on effect for Africa. Both Chevron and ExxonMobil have major assets in the Caspian region. The region’s predictable cash flow has provided the companies the necessary leverage for developing assets in other parts of the globe, including Africa. How will this play out in the coming 5-7 years? Will these two majors have an ‘oil sands‘ moment, much like TOTALEnergies had in 2020 in Canada, in 2020,  when it wrote off two oil sands projects listed as ‘proven reserves’?

The current RRR(Reserves Replacement Ratio) of all the majors is at historic lows, well below the norm of 100%(see below) and their projected change in oil production to 2030 promises more of the same( also see below).

ExxonMobil is in a state of turbulence. Once seen as the oil and gas industry leader, ExxonMobil is in uncharted waters. Its biggest challenges are legal, not the search for oil and gas: ExxonMobil’s management has been forced to accept three new board members, nominated by Engine Number 1, a small, but very influential investor; and an environmental court challenge which potentially could derail its Deepwater Guyana projects.  Surely the court decision in the Netherlands ordering Shell to cut by 2030 its CO2 emissions by 45% compared to 2019 levels, is a decision being followed closely by the courts in Guyana and the boardroom of ExxonMobil.  After all ExxonMobil’s upstream activities in the Netherlands and the UK are joint-ventured with Shell.

ExxonMobil has written down between $17-$20Billion in impairment charges and is capping capital spending at $25Billion a year through 2025, a $10Billion reduction from pre-pandemic levelsIts market capitalization now hovers at $250Billion; in October 2020 ExxonMobil’s market cap plunged to $140Billion.

To meet the green challenge ExxonMobil has unveiled a plan to build one of the world’s largest carbon capture and storage (CCS)  projects along the Houston Ship Channel in Texas. The proposed project would cost $100billion and would capture and store 100 million metric tons of CO2 per year. 

For the project to be economically viable, it would need major public funding and the introduction of a price on carbon in the US. ExxonMobil says the project could be fully operational by 2040. 

Yet public reactions are at best muted and at worst cynical. Carbon Market Watch sees CCS “as a lengthy distraction from the debate about greenhouse gas pollution from fossil fuels and getting emissions down at source”.

In 2021 Chevron’s share has lost some of its glitters but has remained resilient over the last 5 years, continuing to hover in the $100 range. In October 2020 its market cap was $142Billion, surpassing ExxonMobil for the first time; its market cap is now $200Billion+.

Chevron management nonetheless suffered an important defeat at its 2021 Annual Shareholders’ Meeting, when 61% of shareholders voted for a proposal by  FollowThis to encourage the US company to reduce its emissions. 

Chevron’s financial situation is better than ExxonMobil:  Primarily lower debt levels, a constant dividend, and an image of being in control. Spending in the period 2022-2025 will be $14-16Billion, instead of $19-22Billion: $3.5Billion outside the USA, of which 70% will be dedicated to Tengiz in Kazakhstan and the remaining $1.5Billion elsewhere. What is surprising is how vulnerable Chevron has become:  heavily financing its Tengiz asset which only represents less than 20% of its daily production of some 3 mboepd.

This is not promising for Africa where Chevron has major operations stretched across the continent:  major projects in Angola, Equatorial Guinea, and Nigeria receiving very limited funding in order to bankroll Tengiz. 

Post-Paris raises serious questions, the primary one being whether Chevron understands what the Energy Transition is about. Yes, Chevron has an environmental, social, and governance(ESG) policy managed and implemented at the highest levels in the company, including a new energy division. Key measures listed include:• Lowering greenhouse gases;• CCS (Carbon, Capture, and Storage) project at the Gorgon LNG project; and• Various health, educational, and community development projects.• Developing biofuels, wind, and solar projects in support of Chevron’s various business units.

Yet Chevron’s entire energy transition strategy is solely done within the confines of the fossil bubble.

Equinor continues defending its twin pillars of oil and gas and its growing offshore wind portfolio. Does the company have the financial depth and ability to achieve maximum leverage for both pillars?

Equinor’s offshore wind portfolio is pledged to grow to 12-16GW of installed capacity by 2030. Renewables will receive more than 50% of capital investments by 2030. Yet there is severe competition from a number of key European new energy players:• Enel in the next 10years will be spending €190Billion on renewables and by 2030 have 145GW installed capacity.• Ørsted will have an installed capacity of 50GW by 2030.• RWE will have 28.7GW of installed capacity by 2022.• Engie spent €7.4Billion on renewables and 33GW of installed capacity.• Iberdrola will spend €150Billion on renewables and target of 93GW installed capacity up to 2030

Equinor has chosen a series of joint ventures to develop its offshore wind portfolio:

Dogger Bank heralded to become the world’s largest offshore wind farm, is being developed together with SSE Renewables. Located in the North Sea, the project will produce some 3.6GW of energy, enough to light up 6Million households. More recently ENI has purchased a 20% stake in the Dogger Bank A & B Project. 

Empire Wind and Beacon Wind assets off the US east coast. In September 2020, BPannounced it was buying a 50% non-operating share. A basis for furthering a strategic relationship. The two projects will generate 4.4GW of energy.

Equinor’s more traditional natural gas business continues to be a reliable source of income: the company is Europe’s second-largest gas supplier. Combined volumes from Equinor and SDFI(Norwegian state’s gas volumes) constitute more than 20% of Europe’s gas market.

According to Patrick Pouyanné, Chairman and CEO of TOTALEnergies, the company energy production in the period 2020 – 2030 “will grow by one third, roughly from 3Million barrels of oil equivalent per day(BOEPD) to 4MillionBOEPD, half from LNG, half from electricity, mainly from renewables”.

This is the first time that a major operator has wittingly or unwittingly translated its renewables to BOE (barrels of oil equivalent). The golden rule was that RRR (Reserve Replacement Ratio) was always used to assess a company’s hydrocarbon reserves. This author has for some time argued that oil companies also include other fuels in their reserve count—be that wind or solar– to create a basket of energy reserves, thus increasing one’s reserve count and buttressing up one’s fossil reserves, and adding value to hydrocarbon assets.

By taking renewables on board the company has leapfrogged the competition. 

TOTALEnergies has confirmed that it will have a 35GW capacity in renewables by 2025 and has the ambition of adding 10GW per year after 2025. Translated, that could mean creating an additional 250GW by 2050. The vision is there; now the implementation.

A key to TOTALEnergies’ success is its ability to step into projects at an early stage. Some examples:

• 50% portfolio of installed solar activities from the Adani Green Energy Limited, India;

• 51% Seagreen Offshore Wind project in the United Kingdom;

• Major positions in floating wind projects in South Korea and France.

In terms of deepwater, TOTALEnergies will be focused on its two South African assets: Brulpadda(Drilled to a final depth of more than 3,600 metres) and Luiperd, the second discovery in the Paddavissie Fairway in the southwest of the block.

In May 2021 a court decision in the Netherlands ordered Shell to cut by 2030 its COemissions by 45% compared to 2019 levels. While this decision may be appealed, the repercussions are far-reaching for Shell and the rest of the industry. 

IEEFA (Institute for Energy Economics and Financial Analysis) recently evaluated Shell’s green progress. According to Clark Butler, the author of the report, Shell must shift at least $10Billion per annum or 50% of total capital expenditures from oil and gas and invest in renewable energy if they are to reduce their carbon intensity in line with their own stated goals.

Between 2016-2019, Shell spent $89Billion in total investments, of which only $2.3Billion was devoted to green energy. In 2019, Shell’s overall operating costs came to $38Billion and capital spending totaled $24Billion.

At present Shell is undertaking a major cost-cutting operation dubbed ‘Project Reshape’ across its three major divisions:• 35% -40% cuts at the Upstream division where the focus will be reduced to 9 core hubs such as Gulf of Mexico, Nigeria, and the North Sea. In Nigeria, Shell has announced plans for disbanding its onshore assets which will certainly spawn growth among Nigeria’s independents. • Integrated gas division, which includes the company’s LNG business, deep cuts are anticipated.• Downstream the review is focusing on the company’s 45,000 service stations, designed to play a key role in the energy transition.

Prior to the court decision, Shell was taking an incremental, testing-the-waters approach. Fiscal discipline was the order of the day so as to be able to continue paying its somewhat reduced, but still royal dividend of 4%.

Shell, undoubtedly in the coming months, will fast-track its new energy strategy. Two projects, which will probably be showcased, to serve as examples of what we can anticipate in the future:

NortH2 Vision, in which Shell and Gasunie have combined forces to create a mega-hydrogen facility, fed by offshore wind farms, which by 2030 could produce 3-4GW energy and possibly 10GW by 2040, becoming one of Europe’s largest hydrogen projects.

Refhyne Project, Rhineland Refinery. Shell is completing the largest PEM electrolyzer in the world at the Rheinland refinery in Germany (10MW). The company aims to become the leading supplier of green hydrogen, where hydrogen production is powered by renewable energy for industrial and transport customers.

Will the BP-ENI merger of activities in Angola become a model for other African countries? An Algerian variant is perhaps already in the making.   Reuters reported that a potential deal would allow ENI to acquire BP’s 45.89% stake in the Amenas natural gas plant and a 33% stake in the Salah gas plant. ENIexpects to transform Algeria into a hub with the acquisition of BP’s assets.

ENI is Africa’s biggest oil and gas producer with a production of 900,000(BOEPD).

The precedent for the BP and Eni merger talks in Angola finds its roots in Norway. In 2018 Vår Energi was created through a merger between HitecVision’s Point Resources and Eni Norge.

Egypt could prove to be more challenging for both companies to find a lasting solution either to work together or a possible takeover of assets. BP currently produces, with its partners, close to 60% of Egypt’s gas production through the joint ventures the Pharaonic Petroleum Company (PhPC) and Petrobel (IEOC JV) in the East Nile Delta as well as through BP’s operated West Nile Delta fields.

Nonetheless, ENI claims to be Egypt’s largest oil and gas producer and its huge Zohr gas field is viewed as an example of the company’s extensive assets in the country. Most recently ENI, together with EEHC (Egyptian Electricity Holding Company) and EGAS (Egyptian Natural Gas Holding Company) has signed an agreement to assess the technical and commercial feasibility of producing hydrogen.

Could the BP-Eni joint venture also be extended to assets in Russia and Kazakhstan? BP’s 20% share of Rosneft and Eni’s two large assets in Kazakhstan-co-operatorship of the large Karachaganak Project, and its 16.81% share of the Kashagan Project-could provide food for thought.

Will BP become the first super-major to become an investment vehicle that is both green and can guarantee shareholders a handsome return on investment?

BP’s goal is to become greener, but in the process building an investment structure, which requires only a few skilled accountants. The company has either sacked employees or will be delegating BP’s headcount to its joint ventures. The goal is becoming lean and mean, reducing costs and hopefully increasing margins. In short, an investment vehicle. 

BP is promising returns in the range of 12% -14% in 2025 – up from around 9% today, financed by a $25Billion divestment fund and a pipeline of 25  oil and gas projects. Oil production will also be reduced to 40% by 2030.

To date the company has initiated a series of joint ventures in order to speed up its transition:

• BP and Ørsted announced that they will jointly develop a full-scale green hydrogen project at BP’s Lingen refinery in Germany. The two firms intend to build an initial 50MW electrolyser and associated infrastructure, which will be powered by renewable energy generated by an Ørsted offshore ‎wind farm in the North Sea and the hydrogen produced will be used in the refinery.

• BP and Equinor revealed that BP would become a 50% partner, of the non-operated assets Empire Wind (Offshore New York State) and Beacon Wind (Offshore Massachusetts). BP and Equinor will jointly develop four assets in two existing offshore wind lease located offshore in New York and Massachusetts that together have the potential to generate power for more than two million homes.

• BP joined Statkraft and Aker Offshore Wind in a consortium bidding to develop offshore wind energy in Norway. The partnership–in which BP, Statkraft, and Aker Offshore Wind will each hold a 33.3% share–will pursue a bid to develop offshore wind power in the Sørlige Nordsjø II (SN2) license area. 

The speed with which BP unveiled its strategy to spend $5Billion per year to green itself so that it could have 50GW net regenerating capacity by 2030, .indicatesthat it wants a seat at the green table occupied by the new energy elite-Engie, Enel, E-on, Iberdrola, Ørsted, RWE, and Vattenfall- who have pole positions in determining the direction of the global renewables market.

The question is: is that an ambitious enough target to hand BP a place at the green poker table?  Perhaps a starting position, but hardly enough to be classified as a heavy-weight, green poker player!


1. The court decision in the Netherlands demanding Shell lower its CO2 footprint, together with the IEA’s insistence that the world does not require more oil and gas projects beyond 2050, are the two drivers that will determine the future of the oil and gas industry.

2. The proposed BP-ENI joint venture, which will combine their Angolan assets, will likely be modeled across Africa, and possibly other oil and gas provinces. Excluding ENI for the first time, as an independent member of the big oil fraternity.

3. Look for more co-operation between Chevron and ExxonMobil, most dependent on oil and gas assets, to ensure they can maintain an image of economies of scale.

4. Shell and TOTALEnergies will have to make strategic decisions regarding their deepwater activities, renewables, and LNG & natural gas. Are the three divisions of each company large enough, focused enough, have sufficient budget, and a proper strategy in place to ensure that a reduced carbon footprint is achieved and at the same guaranteeing green shareholders a golden dividend which they anticipate? 

5. Look for more extended co-operation between Shell and TOTALEnergies in deepwater, renewables, and LNG and natural gas. They may possibly hive off whole sectors and create new joint ventures to maintain market share.

6. Equinor will seek more extended co-operation with BP and the new energy elite-Engie, Enel, E-on, Iberdrola, Ørsted, RWE, and Vattenfall-to ensure a place at the green poker table.

7. BP’s strategy to turn itself into an ‘Investment Vehicle’; setting up a series of joint ventures to implement its new renewable strategy, will be closely monitored by the rest of the sector and shareholders. 

8. Europe’s new energy elite-Engie, Enel, E-on, Iberdrola, Ørsted, RWE, and Vattenfall-will determine the speed and strategy of the Energy Transition. Will Africa be part of this strategy?

9. The Oil Majors’ energy transition strategy for Africa has been one of ‘beads and trinkets’. Their African balance sheets have financed their renewables strategy elsewhere around the globe. This is unlikely to change.

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was the founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars, and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia, and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report and contributes to the Institute Energy Economics and Financial Analysis (IEEFA).



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