Are European or US oil firms taking the right approach to renewables?

ConocoPhillips’ 10-year strategy contains no commitment to investing in solar or wind

USoil giant ConocoPhillips (COP:NYSE) recently unveiled its 10-year plan for growth.

Conspicuous by its absence was any plan to shift investment into the renewables space. Conoco is not alone, with most US peers also avoiding putting money into solar and wind.

Yes, there was a nod towards the company’s 2050 net zero ambition and accelerating its 2030 emissions reduction target but this relates to the emissions generated by the company’s operations not by the hydrocarbons it produces and sells on.

Jefferies analyst Lloyd Byrne was impressed by the proposals: ‘We view Conoco’s 10-year plan positively as the company outlined free cash flow, production, and capex outlook by asset, all the while emphasising a low cost of supply and more than 30 years of resource life.

‘Over the next decade, Conoco plans to generate more than $115 billion of free cash flow at $60 per barrel WTI (the main US pricing benchmark) as it brings its long cycle projects online. The company reiterated its commitment to returning at least 30% of cash flow to shareholders.’

Highlighting upwards of three decades of resource life suggests ConocoPhillips thinks the world will still be consuming plenty of oil and gas at the halfway point of this century.

When it talks about the energy transition it points to its interests in areas like liquefied natural gas and carbon capture. Not activities likely to meet the environmentalists’ criteria for truly ‘green’ energy.

President Joe Biden may have entered office with big talk about a shift into renewables but in his State of the Union address in February he said: ‘We’re going to need oil for at least another decade... and beyond that.’

The war in Ukraine and the sudden exit from the market of a significant source of supply has both incentivised the continued production of oil and gas thanks to higher prices and increased the importance of developing all sources of energy to boost energy security.

What is interesting is whether Conoco’s strategy is the kind of approach BP (BP.) and Shell (SHEL) would like to pursue, avoiding the unpredictability of returns from investing in renewables, but they are too cowed by shareholder, public and governmental pressure to do so.

There are hints of mission creep at BP. Its chief executive Bernard Looney made such a song and dance about transition when he first took over in early 2020 that he may as well have been armed with a hat and a cane. Yet alongside its latest full year results, BP scaled back planned cuts in oil and gas and investment in renewables. For its part, Shell kept spending on renewables flat for 2023 after it hit an all-time high in 2022.

Who is to say which is the right approach. Perhaps the US firms will be left behind by their European brethren and be burdened with stranded assets as the social and economic costs of producing oil and gas reach unacceptably elevated levels, devastating their market valuations. Or maybe they will deliver better shareholder returns and attract higher ratings as a result. The jury is out for now.

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