Big Oil Is Carving Out Its Place in Renewables

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Oil & Gas

Big Oil sees the writing on the wall. It is putting its capital to work outside the oil and natural gas sectors.

Fossil fuels are on the way out, and renewables are on the way in. Companies like Royal Dutch Shell (NYSE: RDS.A), Exxon Mobil (NYSE: XOM), Statoil ASA (NYSE: STO) and Total SA (NYSE: TOT) want a piece of it.

If you own shares of any of the major oil companies or are thinking of investing in them, read on.

Plunging oil prices and profits are forcing Big Oil to look for new opportunities. And it’s finding them in renewables.

Shell created an entire division called New Energies. Its starting cash pile is $1.7 billion.

Total SA, the French oil giant, spent more than $1 billion to purchase Saft. That’s a major manufacturer of batteries – a key component in making green energy reliable and useful.

Back in 2011, Total plunked down $1.3 billion to purchase a 66% stake in solar panel maker SunPower Corporation (Nasdaq: SPWR). Total’s plan is to invest at least $500 million every year in renewables.

And even Exxon Mobil, whose CEO, Rex Tillerson, pooh-poohed the whole idea of climate change last year, is now investing in fuel cell technology that allows cars to run on hydrogen extracted from water. It’s also planning to build carbon capture and storage facilities.

Why Are the Majors Going Green?

Truth is, they don’t have a choice… Big Oil has to start embracing energy alternatives.

Take BP (NYSE: BP) for instance.

In 2015, it’s reported the biggest loss of any of the majors, a whopping $6.5 billion.

And just look at the quarterly income of ConocoPhillips (NYSE: COP) once the you-know-what hit the rotating blades in 2015.

quarter-income-conoco

Big Oil can’t be certain a turnaround is ahead. It’s working in an increasingly fragmented, unstructured and chaotic global oil market.

Even OPEC is coming apart.

Member countries Iran and Saudi Arabia hate each other.

Venezuela is near financial collapse.

Libya is in the midst of a civil war.

And rebels keep blowing up pipelines in Nigeria.

Yet smaller, independent producers in the U.S. and Canada keep pumping oil. While the glut they’ve created lowers their own profits, it also lowers the profits of the majors.

So the real reason why the majors are going green is they have to. Their very survival is at stake.

It’s clear… oil isn’t enough to sustain these large companies in a low-price environment.

What Should Investors Do? 

After studying most of the majors’ shifts toward renewables, I recommend you seriously consider taking a look at Big Oil companies that are making bigger moves in renewables, like Total. Its seriousness about investing in renewables sets it apart from all the other majors.

It’s dropped a cool $8 billion on renewables and clean energy over the last five years. That’s more than any of the other majors.

And unlike Exxon’s Tillerson, Total’s CEO, Patrick Pouyanné, has his salary tied to how well Total meets its low-carbon goals. He recently said that Total’s investments to lower greenhouse gases are “a cornerstone of our strategic vision.”

Total expects renewables to make up 20% of its assets by 2035. Today, they make up just 3%.

In addition to its Saft purchase and SunPower investment, Total has made smaller investments in companies that are part of what I call the “Energy Disruption Triangle.”

In Total’s case, instead of relying on electric vehicles to help store energy, it’s looking toward the power grid for its storage business.

For instance, it invested in Sunverge Energy. The company develops software and hardware to help utilities integrate storage batteries into their power grids.

The bottom line is this: If you’re an investor in oil majors, look at where they’re going, not where they are.

If you take this approach with Total, you’ll come to the same conclusion I did.

Total is going to be a sustainable energy company to rival Tesla. You heard it here first.

Good investing,

Dave