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ExxonMobil focused on core oil and gas as renewable returns too weak: official

Highlights

Wind, solar returns at 'utility rates'

Questions over shift to renewables by European majors

Committed to Brazil upstream investment

London — ExxonMobil remains focused on growing its core oil and gas business as alternative renewable energies are mostly unable to offer attractive rates of return compared to hydrocarbons, a top official at the US oil giant said Sept. 30.

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Asked why ExxonMobil is still planning to grow its future oil production while European oil majors are pivoting towards renewable and low-carbon energy, ExxonMobil's head in Brazil Carla Lacerda said the company is prioritizing its "core competencies" of oil and gas.

"Our fundamental belief is that if we were to invest in solar or wind, for example, we don't have an engineering background business background of that type of business so we would have to joint venture or acquire a company to do so," Lacerda told the FT Commodities Global Summit.

"We believe in the fundamentals of the oil and gas business," she said. "We believe societies and economies will continue to need oil and gas. In the upcoming years, the alternatives really can only fulfill a small amount, or a relatively modest amount, of the overall demand that exists."

Despite sharp declines in the cost of solar and wind power in recent years, returns from renewable investment remain below average rates achieved from oil and gas, Lacerda said.

"As we look at it now in terms of business, many of these projects are really providing utility rates of return, so it doesn't seem like the value generation is exactly in that," she said.

Shift to renewables

Lacerda's comments come just days after Rosneft's first vice president Didier Casimiro told the conference that recent moves by European oil majors to shift away from oil and gas to renewables present an "existential threat" for future oil supply and price volatility.

He also said other producers "will need to step in" and "take that responsibility" as some oil majors move away from their core oil business.

BP surprised investors in August with plans to shrink its oil and gas production by at least 1 million b/d of oil equivalent, or 40%, over the next decade, in a radical transformation.

Also speaking at the FT event Sept. 30, Professor Paul Stevens, a Distinguished Fellow for Energy, Environment at the UK's Chatham House said oil majors are facing major hurdles in retooling for a lower-carbon future due to "extremely competitive" power and renewable energy markets.

"Oil companies, despite their best efforts, are going to struggle to maintain shareholder loyalty, and I think that's going to be a big problem," Stevens said.

Committed to Brazil

In Brazil, Lacerda said ExxonMobil's exploration-led upstream projects remained on track despite the recent company-wide spending cuts in response to the pandemic-triggered oil price collapse earlier this year.

"We have 28 blocks of which most of them are exploration," she said, "Although the company has gone through a capex reduction of 30% for 2020 ...the Brazilian projects remain on track largely because of the world-class play, because these are assets that we feel will perform well, pending discoveries, in the pricing environment that we're in."

Asked how Brazil's deepwater oil plays can compete with rival upstream resources in other parts of the world as producers seek out lower-cost, lower-carbon projects, Lacerda said: "We see the need for production coming from Brazil and the next really in the next decade two decades."

Lacerda also cautioned over the potential for an oil supply crunch as the current round of upstream spending cuts lower the future supply outlook.

"There's going to be a place where production has come down because of the capex curtailments but demand is coming back up. And so there's going to be a shortfall at that point... So we do believe Brazil has a very significant and important role in future production."