Their obituaries have often been published. Now, the major oil companies – ExxonMobil, Shell, Total and their peers – are again being written off. But as they adapt to radical shifts in the energy world, are they going to resurrect past successes, or appear in new reincarnations?
The majors’ problems are clear enough. Even while oil prices were high they struggled to grow profitably, with production falling and costs rising uncontrollably. Exploration for new resources has generally been abysmal, and they missed out on the best of the US shale revolution.
Their reputation for project management was dented by high-profile failures such as BP’s Macondo disaster in the Gulf of Mexico, Shell’s struggles in Alaska’s stormy waters and the Eni-led consortium’s staggering budget overruns and delays with Kazakhstan’s Kashagan field. They no longer develop much proprietary technology, having let that fall into the hands of service companies such as Schlumberger.
These failings could perhaps be dismissed as temporary and fixable. A more existential threat comes from the growing pressure around climate change, undermining the very meaning of their business, the production and sale of oil and gas. Renewable energy is making more rapid advances as costs fall – an even bigger concern is that electric vehicles could eventually eliminate about 70 per cent of the oil market.
The oil companies have mostly not succeeded in their renewable energy ventures in the past. They are not familiar with electricity generation, and solar and wind ventures have been the first to be cut when budgets are tight.
So reputable think tanks such as the UK’s Chatham House have suggested Big Oil should act like Big Tobacco: forget growth, slowly liquidate itself and pay dividends to shareholders.
But the majors retain huge resources, of finance, reputation, organisational skill and individual talent. They survived the nationalisation of their substantial reserves in Opec countries in the 1970s, then a decade-and-a-half of low oil prices up to 2000. They might be tempted to follow the old playbook – cut costs and find new technically challenging areas where they do not face competition from national oil companies.
But as opposed to the early 2000s, when they had copy-cat strategies, the majors are now following distinctly different paths. ExxonMobil and Chevron have turned to US shale, becoming the leading drillers in west Texas’s Permian Basin. Maybe these financially strong tortoises will eventually overtake the smaller hares that are the pure shale firms.
Eni is the only major to have done well in exploration, finding giant gasfields at Zohr in Egypt and in Mozambique. It has welcomed exposure to political risk and renewed its close cooperation with the Italian state.
Total has moved aggressively into renewable energy, buying a majority stake in SunPower, one of the US’s largest solar companies, and the battery maker Saft. At the same time, it has bid boldly for long-lived Middle Eastern hydrocarbon assets, paying a reported US$2.2 billion for 10 per cent of Abu Dhabi’s Adco onshore oil company last year, and winning a 30 per cent stake in Qatar’s largest producing oilfield, Al Shaheen, last month.
Shell is also looking harder at renewables, with its new energies division, and shale, refocusing its efforts on a few high-quality areas and streamlining its usual bureaucratic processes. It is the only major to have made a major acquisition, of BG – betting even more than its peers on the “golden age of gas”.
BP, still recovering from Macondo, is the laggard, with its chief executive Bob Dudley’s mantra that “big is not necessarily beautiful” yet to translate into a clear strategy.
The majors are not content to slip quietly into extinction, as their critics propose. They are searching for new incarnations, whether leaner and hungrier, or hybrids of traditional and new energies. Big as the challenge is, the 20th century behemoths may still shape energy in the first half of the 21st.
Robin Mills is the chief executive of Qamar Energy and the author of The Myth of the Oil Crisis.