One thing to start: Vicki Hollub, Occidental Petroleum’s chief executive, says her company is doing more to reduce carbon emissions than Tesla.

Joe Biden will enter the White House tomorrow and big energy policy changes will follow — fast. One policy move was leaked on Sunday: as expected, the new administration will scrap the permit for the controversial Keystone XL pipeline to ship bitumen (an ultra heavy oil) from Canada’s oil sands to the Gulf Coast. We’ll be following the other new energy announcements closely and picking up on them in Thursday’s Energy Source.

Our first note today is on a new battle under way in the fractious shale patch, as a private equity group takes on producer Ovintiv. We spoke to both sides.

Our second is on France’s Total, which made waves last week by ditching its membership of Big Oil’s Washington lobby group, the American Petroleum Institute, as well as expanding into batteries and solar power in the US. On Monday, it signed another clean energy deal, this one with India’s Adani.

Thanks for reading. Please get in touch at energy.source@ft.com. You can sign up for the newsletter here. — Derek

Stand-off in the shale patch

A new proxy fight in the shale patch is shedding light on the broken relationship between America’s oil producers and their investors after years of cash-burning underperformance.

Kimmeridge Energy Management, an activist oil and gas fund, launched a public attack last week on leading shale producer Ovintiv’s “dismissive and defensive” management team, accusing it of being “addicted” to debt, making repeated “value destructive” strategic missteps and failing to adequately tackle emissions.

Ovintiv’s chief executive Doug Suttles rejected Kimmeridge’s assertions, telling ES, “the board and management team were focused on sustainable value creation”, pointing to recent pre-released fourth-quarter results showing “debt reduction ahead of schedule, capital investments below guidance and stronger than expected production”.

Kimmeridge’s criticism of Ovintiv, in which it holds about 2 per cent, echoes widespread investor complaints about the shale sector.

Explosive oil and gas output growth over the past decade propelled the US into the top ranks of global producers, remade international energy markets, and was a pillar of America’s economic growth.

But this debt-fuelled production surge failed to yield returns for shareholders, who had turned on the sector even before last year’s price crash. Ovintiv’s shares have rallied on rising prices in recent weeks, but are still trading at a third of their level in mid-2018.

Ovintiv is “emblematic of everything that is wrong with the US E&P sector,” Mark Viviano, managing partner at Kimmeridge, told ES.

Mr Viviano argued that better aligning executive pay with performance is key to turning the company around. He pointed out that Mr Suttles has pulled in around $75m in compensation since taking over in 2013, despite a total shareholder return that lagged competitors’ and came in at -85 per cent.

“As the CEO continues to destroy value, he gets paid over $12m a year. There’s no correlation with shareholder value creation. And if there’s no financial incentive, and no oversight at the board level, the concern among investors would be that track record continues,” said Mr Viviano.

The company’s management, he added, has been tone deaf on growing environmental, social and governance demands, failing to act on a vote approved by a majority of shareholders last year to set emissions targets aligned with the Paris agreement.

Kimmeridge is prepared to announce three new board member nominees for shareholders to vote on in the coming weeks that would “help position Ovintiv for the energy transition with a focus on capital allocation, governance and environmental stewardship,” said Mr Viviano.

Activist investors have struggled to make headway in the shale sector, though they have typically focused on pushing asset sales or mergers and acquisitions, rather than root and branch management reform.

So the market will watch this proxy fight closely. Shale producers are under intense pressure not to return to their free spending ways as US oil prices top $50 a barrel.

Despite companies’ assurances that they have changed their ways, Mr Viviano is doubtful, arguing underlying issues like executive compensation still have not been addressed.

“As far as investors are concerned these management teams are guilty until proven innocent. The industry track record speaks for itself,” he said (Justin Jacobs)

Total’s clean energy pivot gains pace

France’s Total is on a green run.

A $2.5bn green energy deal with Indian tycoon Gautam Adani’s empire was announced on Monday. The company withdrew from the American Petroleum Institute, the most powerful oil lobby group, last Friday. That came a day after forming a joint venture to develop 12 utility-scale solar and energy storage projects in the US. It also said it would acquire a French biogas producer last week.

For Total, all this activity is a sign it is executing on its promises to expand heavily along the electricity supply chain, which includes renewable generation. It aims to have 35 gigawatts of renewable energy generation capacity by 2025 from around 9GW now.

Like its peers BP and Royal Dutch Shell, Total is under mounting pressure from environmentalists and investors to announce plans for shrinking emissions and boosting renewable energy output. But for now it is still its legacy businesses that are the most lucrative.

Total wants to show investors a coherent plan for its own transition, hopeful that the reward from shareholders — and a climate premium — will come.

“What we intend to do is transform the company into a broad energy company that will be successful today, tomorrow and the day after tomorrow,” said Philippe Sauquet, who heads up gas, renewables and power at Total.

“Patrick [Pouyanné, Total’s chief executive] said loud and clear that our goal is to be among the five global leaders among renewables,” said Mr Sauquet. This, he said, was a “wake-up call” for some analysts and bankers about the company’s ambitions.

For now, though, like its rivals, Total’s share price has been rescued by a rally in the oil price. While a nearly 50 per cent jump since late October has been welcomed after a brutal 2020, shareholders have yet to validate the company’s climate push. (Anjli Raval)

Data Drill

The amount of methane the US energy sector spilled into the atmosphere last year neared the top of the global charts once again, coming in second only to Russia. 

With venting and leaks in the shale patch continuing to drive the country’s elevated methane emissions, according to fresh data from the International Energy Agency, the US accounted for 16 per cent of the 72m tonnes of methane emitted by the global oil and gas industry.

Emissions fell in 2020 alongside lower production, but they are likely to rebound without new restrictions. After Donald Trump rolled back rules forcing producers to monitor and fix methane leaks (even in the face of opposition by some larger companies), President-elect Joe Biden has vowed to clamp down on emitters when he takes office on Wednesday. 

Bar chart of US oil and gas methane emissions, million tonnes showing Shale venting continues to drive methane emissions in US energy

Power Points

  • New York state is forging ahead with hundreds of miles of new high-voltage power lines. Clean energy advocates want the country to follow suit.

  • Steve LeVine’s essay tests assumptions that another “roaring twenties” of euphoric economic and technological progress will follow the pandemic.

  • Adnoc, the UAE’s state oil company, is unapologetic about its plans to accelerate oil production capacity.

  • The Oxford Institute for Energy Studies took a deep dive into hydrogen’s potential in the European energy sector.

  • China’s economy is rebounding faster than expected.

Endnote

The International Energy Agency, the US Energy Information Administration and Opec have released their first oil market assessments of the new year. Here is our round-up of what matters and what changed:

Demand 2021Revision vs previous monthChange vs 2020Non-Opec supply 2021*Revision vs previous monthChange vs 2020
IEA96.6-0.2+5.568.9-+0.7
Opec95.9-+5.968.7-+0.9
EIA97.8-0.4+5.670.0+0.1+1.3
Figures in million barrels a day; *Includes Opec natural gas liquids

Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs and Emily Goldberg.


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