Exxon vs. Activists: Battle Over Future of Oil -2-

Some of Mr. Woods’ largest investments could prove profitable for Exxon as oil demand recovers and Exxon colleagues including BP PLC and Royal Dutch Shell PLC divert money from oil exploration to renewable energy. In Guyana, where Exxon made one of the biggest oil discoveries in years, analysts said the company was able to achieve a return on investment of 20% or more that far exceeded the returns on renewable projects.

However, many investors are increasingly dissatisfied. Exxon’s shares have rebounded from the slump during the pandemic but are still trading at just 1.5 times their book value, compared to 3.5 times book value shortly after Mr. Raymond left.

Hard sale

Engine No. 1 relies on this dissatisfaction. It has hammered home Exxon’s financial underperformance towards investors while challenging Exxon’s refusal to entertain the idea that fossil fuel demand could fall faster than expected.

Mr Woods, unlike Mr Raymond, has recognized the contribution of fossil fuels to climate change and stated that Exxon can help reduce emissions while remaining committed to oil and gas. In March, he presented a strategy with which Exxon is to remain as the largest Western oil producer. This has proven difficult for some investors.

Big money managers like BlackRock are also under pressure to influence their portfolio companies to do more against climate change. BlackRock, State Street and Vanguard together own more than 20% of Exxon stock and could tip the scales in Wednesday’s vote. All three have signed pledges in support of targets to achieve net carbon free emissions by 2050 or earlier. The International Energy Agency said investment in new fossil fuel projects must stop immediately if the world is to achieve this.

Legal & General, the UK’s largest asset manager, which owns approximately $ 1 billion worth of Exxon shares, said earlier this month it could not support Mr Woods’ strategy and would vote for Engine # 1’s plan. John Hoeppner, head of US Sustainable Investments, said his team had met with Exxon representatives several times over the past few months and noticed a more conciliatory tone, but Exxon had not made any substantive proposals to address the company’s concerns.

“It was like, ‘We heard you, investment community, we listened and delivered, now we’re moving on,'” he said. “They don’t realize that there is a structural challenge.”

Other investors said they had spoken directly to Mr. Woods for the past few months and that he had improved investor reach since he became CEO. But they said Mr. Woods was unwavering about his views that the demand for oil and gas would increase in the years to come and unwilling to make any suggestions about how Exxon should hedge its bets.

Engine # 1 has said that Exxon’s moves have been inadequate since the proxy battle began. It portrayed Exxon’s low-carbon unit as a greenwashing exercise that is more about outreach than investing. The fund said Exxon refused to meet with its candidates. Exxon said it reviewed the Engine # 1 candidates and found they did not meet the board’s standards.

Despite the controversy, Engine # 1 asked Exxon not to wind down its oil and gas business but to diversify gradually to be ready for a world that needed less oil and gas. The commitment to reduce carbon emissions to zero is not just a social benefit, but a business imperative for Exxon in a changing energy market.

Mr. Woods firmly believes that Exxon will lead the energy transition. Exxon has made significant investments to reduce carbon emissions while meeting global oil and gas needs.

“Whatever the future,” said Woods, “we will be more valuable. That is the goal we work for.”

Write to Christopher M. Matthews at [email protected]

(END) Dow Jones Newswires

May 25, 2021 10:11 ET (2:11 PM GMT)

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