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Even the Oil Industry Sees the Writing on the Wall Thumbnail

Even the Oil Industry Sees the Writing on the Wall

As investors keenly focused on ESG, it’s not a shock that we avoid oil. The oil industry is a major contributor to climate change, and we can’t support that harm with our portfolio dollars. There’s also a business angle to this as well, though. We believe the world is moving away from oil because of what it’s doing to the planet, and that means the industry is set for long-term decline.

But you don’t have to take our word for it. A cursory glance at what the oil companies and their executives are doing demonstrates that they also can see where the world is heading.

  1. Executives Hit the Sell Button When Crude Soared

Oil prices were very strong in the first half of the year, supported by Russia’s invasion of Ukraine and subsequent fears about supplies. Naturally, profits at oil companies soared in tandem with crude. What is notable, however, is that many oil executives seem to have used rising stock prices to cash out of the own holdings. In the words of Bloomberg News back in April, “more U.S. energy executives sold rather than bought stock in their companies than at any time since 2012, according to VerityData, which advises institutional investors.” 

Outsized sales by these corporate insiders suggests that they aren’t particularly optimistic about the oil industry’s future—and they’re capitalizing on a short-term bump in the price of crude to get out while the going is good.

  1. Oil Companies Are Using Profits to Buy Back Stock, Rather Than Invest 

Corporations that are truly bullish about their prospects use a significant share of current earnings to expand. Curiously, that’s not what the oil industry is doing. They’re making huge profits this year, but rather than use the bulk of this windfall to expand future production, these companies are overwhelmingly buying back their own shares instead. ExxonMobil, for instance, announced that it will buy back $30 billion of the company’s shares by the end of 2023.

  1. The Industry is Spending Way More on PR Than on Climate-Friendly Solutions

If you watch an oil company’s commercials, you could easily come way with the impression that they are spending mightily on clean energy and climate-positive solutions. Alas, the reality couldn’t be more different. NGO Influence Map estimates that only 12% of the output by the so-called “big 5 producers” can be classified as “low carbon”. Meanwhile, these companies appear to be spending somewhere on the order of $750 million each year on climate-related communications. There is, in other words, a massive gulf between what the industry is saying and what it’s doing. They want to be seen as green, but they’re nowhere close to it.

A Reason for Optimism

The above points can reinforce our cynicism towards the oil companies. But perhaps there’s some good news woven throughout. If even the industry and its executives can see that the writing is on the wall for oil, that’s something worth smiling about. 

The opinions expressed are those of Change Finance, P.B.C., Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward looking statements cannot be guaranteed. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. This material is not financial advice or an offer to sell any product. 

 Change Finance, P.B.C., is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Change Finance, P.B.C., investment advisory services can be found in its Form ADV Part 2, which is available upon request.