Chevron Doubles Down On Profitable Oil And Gas
The climate lobby’s pronouncements that the end of fossil fuels is nigh appear as premature as warnings two decades ago that supply would soon run out
Chevron on Monday announced a $53 billion bid for Hess Corp. because it knows the world will need oil and gas for the foreseeable future no matter how much politicians subsidize ‘green’ energy.
Chevron’s Hess acquisition comes on the heels of Exxon Mobil’s $60 billion tie-up with Pioneer National Resources this month.
Higher interest rates are prompting consolidation across the U.S. economy, as smaller, less-capitalized companies struggle to borrow. Oil and gas giants are flush with cash owing to the run-up in prices over the past two years.
As he tried to deflect blame for high gasoline prices last year, President Biden demanded that oil and gas companies spend their record profits on increasing production.
That’s what they’re doing. Chevron says the combined company is “expected to grow production and free cash flow faster and for longer” than its current five-year guidance.
Hess will increase Chevron’s footprint in the Gulf of Mexico and North Dakota’s Bakken shale formation.
Texas’s Permian basin accounts for almost all of the U.S. oil supply growth over the past three years, but its production is expected to start tapering off by the end of this decade. Hess’s Bakken assets could then become more valuable.
But Hess’s most lucrative real estate may be off the coast of Guyana, where it holds a 30% share in an estimated 11 billion barrels of recoverable oil and gas resources, which it is developing with Exxon and China’s Cnooc.
That play currently produces 400,000 barrels a day and is expected to “deliver production growth into the next decade,” according to Chevron.
If Chevron believed that demand for hydrocarbons would soon peak and decline—as the International Energy Agency (IEA) claimed last month—it instead could have boosted investment in heavily subsidized green-energy ventures such as hydrogen or increased shareholder buybacks.
But oil and gas are yielding a higher return on capital than renewables, even with the government’s enormous green subsidies.
This is why BP and Shell are scaling back wind and solar investment and sinking more capital into ‘fossil fuels’. Chevron CEO Mike Wirth says the company will make a double-digit return on capital.
Offshore wind projects around the world are being scrapped because they aren’t expected to be profitable amid higher interest rates and material costs.
Ford and General Motors are putting their electric-vehicle manufacturing plans in neutral amid slowing consumer demand. Tesla also recently dialed back plans to expand production.
Demand for green energy and EVs could peak sooner than demand for ‘fossil fuels’. Population and energy demand are growing mostly in low-income countries.
Nigerians aren’t going to drive Teslas or power their homes with solar panels.
High costs and technological challenges also limit the widespread deployment of green energy and EVs in wealthy countries.
The climate lobby still isn’t paying attention. The IEA last month proclaimed that the world is witnessing “the beginning of the end of the ‘fossil fuel’ era.”
Green activists are demanding that companies disclose their “climate risks”. The real threat to a more prosperous future, as Chevron well knows, is a world with too little oil and gas, not too much.
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Header image: Oil & Gas IQ
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