Doug Sheridan considers…

“Per the WSJ Heard on the Street, Shell and BP may be less relaxed about the recent megadeals announced by peers ExxonMobil and Chevron than they are willing to admit in public.”

Doug Sheridan considers…

Per the WSJ Heard on the Street, Shell and BP may be less relaxed about the recent megadeals announced by peers ExxonMobil and Chevron than they are willing to admit in public. And there is speculation that the two companies could merge, with smaller businesses or even with each other.

But the European supermajors’ lower stock market valuations make all-share offers for US  assets tricky. High energy prices mean they are still producing plenty of cash that could be used for acquisitions. But Shell and BP are more cautious about long-term demand for oil than their US peers.

The real game changer for Shell and bp would be if public market investors began to give them credit for their low-carbon assets. The 10 biggest constituents of the S&P Global Clean Energy Index trade at a multiple of 17 times forecast earnings, much higher than fossil-fuel companies in Europe or stateside.

But that will take a very long time. The wall of cash looking for green energy investments needs to see much more progress—perhaps 40% or 50% of profits coming from low-carbon businesses, or a larger share of capital expenditure being spent on clean energy—to feel comfortable holding oil-and-gas stocks.

To Sum It Up: No one seems to agree on how quickly the world’s energy system can cut emissions. Exxon Mobil doesn’t see demand for oil falling at all between now and 2050, while the International Energy Agency (IEA) thinks peak oil demand is just a handful of years away. That makes it tough for traditional energy companies to know which way to jump, making the case for a European megamerger even less clear.

Our Take: Notice the shift in tone from the WSJ concerning what the real path will be on global emissions? It's gone from assuming the Paris accord commitments had teeth and, thus, a comprehensive global energy transition was inevitable... to recognizing that most nations actually have no intention of committing economic Hari Kari on the climate-change alter, thus calling into question the timing and scale of a transition altogether. We'll count this as progress.

#oilandgas #oilindustry #energy