By Barney Smith

In the follow-up to the AGM, ExxonMobil finally had to concede not two, but three seats on the Board to the activist investor Engine No 1 which wanted the company to take more account of the energy transition, of climate change and its inevitable impact on the Oil and Gas industry. ExxonMobil unprecedentedly stopped the counting of the votes (perhaps, to speak with the principals of those funds supporting Engine 1) and then turned to a firm of independent American lawyers to scrutinise the votes.

But all this effort was in vain: at the end of the scrutiny process, three of the existing Board members were ejected. They were Douglas Oberhelman, the Chairman and CEO of Caterpillar, Sam Palmisano, the former President and CEO of IBM, and Wan Zulkiflee, the current head of Malaysian Airlines and the former head of Petronas. Wan had only been on the Board for a few months and was the first non-American ever to be appointed to the Board.

They were replaced by three Engine No 1 nominees:

Gregory J Goff, who generated a 1,224 per cent return for shareholders as the CEO of Andeavor Oil; Kaisa Hietala, who, as VP Renewables, helped transform the refining company Neste into the world’s largest and most profitable producer of renewable diesel and jet fuel; and Alexander Karsner, a previous US Assistant Secretary of Energy and now a senior strategist at the innovation lab of Alphabet (formerly Google).

Among their first tasks will be to consider how ExxonMobil should proceed with their significant discovery of oil in Guyana. In the past the obvious next step would be to develop into production what could be a major new field. But now, might it not be better to avoid the huge expense of development and just leave the oil in the ground? Certainly oil and gas have an assured future for a number of years, but the number is no longer unlimited. Is development of this field the best use of the funds that will be needed (On the assumption that the necessary investment funds are indeed available)?

In a sense, this is a particular instance of the more general problems facing the entire industry. How long have we got? How do we get the most profit from what we have?  Should we diversify, and if so, how and where? Is there a genuine outlet for our knowledge and experience (not just our money)?

But we also need to be aware that the world of oil has already changed significantly. No longer is it the case that most of the oil produced is under the control of the West.  ExxonMobil is the largest, or one of the largest, of all western oil companies, yet with control of maybe three percent of all world production it is significantly smaller than a number of national companies, like Saudi Aramco, which may not be so susceptible to pressure from activist investors.

But the Saudis have other problems: while their lifting costs may be nugatory, they are reputed to need an oil price of around $70 a barrel to balance their budget. It is said that Russia needs an even higher price- hence the significance of recent activities at OPEC.