ExxonMobil: Avoiding the World's Toughest Energy Challenges

Last Updated May 29, 2008 6:56 PM EDT

ExxonMobil Logo"We have the same concerns as people everywhere-and that is how to provide the world with the energy it needs while reducing greenhouse gas emissions," said Rex Tillerson, chairman and chief executive of Exxon Mobil Corp, at the oil-and-gas company's annual shareholder meeting. Reflecting that sentiment, shareholders voted down a resolution requiring Exxon to set a policy to increase support for renewable energy research with 73.6 percent of the vote.

Although the Board recognized a need to reduce greenhouse gas emissions, it remained steadfast that the primary mission of the company -- to shareholders and customers alike -- was to invest its resources in its traditional oil and gas development projects. The board cited evidence from the International Energy Agency (IEA), which estimated that global oil and gas demand growth through 2030 would be close to 10 times the combined amount of growth in biofuels, wind, solar, and geothermal.

Is the world's largest energy company, however, sacrificing its longer-term competitive advantage by ignoring the growing demand for renewable energies and technologies?

All 27 European Union countries, 29 U.S. states, and China now plan to source 15-20 percent of their energy needs from renewables by 2020, according to the Renewables 2007 Global Status Report.

Then again -- despite boasts to the contrary -- none of the majors is doing much to invest resources in renewable energies.

  • In 2008, UK oil group BP will invest $1.8 billion, or about seven percent of its total capital spending across the renewable group;
  • Shell is investing about $1 billion in new energy technologies over a five-year period (the company earned $31.3 billion in FY 2007 net profits);
  • ConocoPhillips plans to spend less than one percent, or $150 million, of its 2008 total capital budget of $15.3 billion on the development of new energy sources, such as alternatives and renewables. (The company will, however, buyback about $10 billion in stock.)
Exxon Mobil, which made a record $40.7 billion last year alone, will defend its profitability by increasing upstream drilling and exploration activities by about 21 percent to $19 billion this year, of which about $10 million will be targeted for renewable energies. The oil giant could leapfrog ahead of its oil sisters in solar technology alone with an investment of say $23.8 million -- offering a 36 percent premium to buyout (at $17 a share) a company like Ascent Solar Technologies -- which is years ahead of Exxon in developing thin-film photovoltaic modules.

Instead, in 2007, Exxon increased compensation for its top five executives by $29.2 million to $69.2 million.

  • David Phillips

    David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.