ExxonMobil lesson may guide Chevron ESG efforts

Chevron will have its work cut out to convince investors and climate campaigners that it is taking the energy transition seriously enough as the oil major gets ready to unveil its low-carbon plans.

The second-biggest US oil producer will be keen to avoid the fate of ExxonMobil, the target of a campaign by activist investors this year in part over a perceived failure to communicate a clear strategy to address its environmental footprint. The company was forced to replace three board members with outside candidates.

At an energy transition event on 14 September, Chevron will need to strike a delicate balance between showing it is taking meaningful steps on the climate front without straying too far from its core business. The US majors, unlike their European peers, have so far resisted calls to set out net zero targets, arguing that fossil fuels will be needed for decades, and Chevron may stick to that policy.

"It seems very unlikely that Chevron management will choose to follow what the European Big Oils have done and set a carbon neutrality target," US bank Raymond James director and equity research analyst Pavel Molchanov says. "That said, a meaningful step in that direction — not all the way to net zero, but a substantial reduction in emissions — would be welcomed by investors."

While in the past it might have been sufficient just to set out targets, regulators and shareholders are now demanding greater disclosure when it comes to firms' plans to address emissions. That includes the portion of the capital programme that will be allocated to renewable and/or low-carbon initiatives, the technologies they plan to use, the timeframe and the regions where they will be deployed.

Chevron may reiterate existing targets to curb carbon intensity and clamp down on flaring, according to consultancy Rystad Energy senior analyst Palzor Shenga. Potential divestments such as its 20pc stake in the Athabasca oil sands project in Canada would also help reduce its carbon footprint, he says.

The pressure on Chevron to speed up its energy transition plans was in full view at its last annual meeting in May, where around 60pc of shareholders ignored the board's recommendation and voted for a non-binding motion calling on the company to cut emissions generated by the oil and fuel it sells.

Exxon marks the spot

Chevron recently followed in the footsteps of ExxonMobil and set up a low-carbon unit. Chevron New Energies will initially focus on hydrogen and carbon capture as it seeks out new technologies that can be scaled up. Chief financial officer Pierre Breber used a recent earnings call to set out the producer's preferred choices to meet its decarbonisation goals. Renewable fuels are favored given their proximity to Chevron's traditional business, but large-scale wind or solar are not as the company does not have a competitive advantage in those areas.

To that end, the firm has announced a number of carbon-friendly initiatives in the past few weeks. It has teamed up with US agricultural commodity firm Bunge to use soybean oil as a feedstock for biodiesel and sustainable aviation fuel (SAF). It has also expanded a deal with California-based waste solutions provider Brightmark RNG to convert waste at dairy farms into renewable natural gas, and plans to sell a test batch of SAF to US carrier Delta Air Lines. And it has signed hydrogen partnerships with companies including heavy equipment manufacturer Caterpillar.

With Chevron poised to grow its prized Permian holdings in coming years, that could also help support its environmental goals, given that the assets have a carbon intensity below the group average, Canadian bank RBC Capital Markets says. "Ramping up the Permian would not only be positive for earnings and free cash flow, but it could also help reduce carbon intensity metrics materially," it says.

By Stephen Cunningham

Chevron and ExxonMobil share index