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Exxon Mobil Corp.'s acquisition of Pioneer Natural Resources in a US$59.5 billion mega-deal is being seen by some as a major vote of confidence in fossil fuels that also bodes well for the Canadian oilpatch.
The U.S. multinational oil giant announced the all-stock deal Wednesday, its largest buyout since acquiring Mobil two decades ago and a move that will create a colossal hydraulic fracturing (fracking) operator in West Texas.
Observers have framed the deal as Exxon doubling down on fossil fuels at a time when the world is seeking to transition to lower-carbon energy sources in order to slow the pace of climate change.
Dan Tsubouchi, Calgary-based principal and chief market strategist with SAF Group, said in an interview that Exxon is clearly confident that global demand for oil will remain strong in at least the immediate future.
"They're spending US$60 billion today," Tsubouchi said. "They wouldn't do that if they didn't see at least a 10-to-15-year window for oil."
That "stronger for longer" outlook is due to a variety of factors, Tsubouchi said, including the fact that many of the technologies necessary for the energy transition — including hydrogen development, sustainable aviation fuel and more — have been slower to roll out than advocates may have hoped.
That combined with the war in Ukraine has led to global energy security concerns, spiking prices and leaving oil and gas companies flush with cash.
Exxon itself posted unprecedented profits last year of US$55.7 billion, breezing past its previous record of US$45.22 billion in 2008 when oil prices hit record highs.
“Demand for oil is not going away as quickly as people assumed,” Tsubouchi said, adding that in the wake of the Exxon-Pioneer merger, he wouldn't be surprised to see an uptick in merger and acquisition activity north of the border.
In particular, he said such deal-making might occur in the Montney region of northeast B.C. and northwest Alberta, where horizontal fracking technology similar to what Exxon will be using in the Permian opens up opportunities for companies to increase production in a relatively cost-efficient manner.
Tsubouchi said oilsands bulls could also be looking to increase production in the coming years, though he said that will likely be accomplished through incremental add-ons to existing facilities — not through the whole-scale construction of a new oilsands mine.
"These companies aren't going to go into something like the mega-projects of the past," he said.
"But they will look at short-cycle projects where they can take advantage of a 10-15 year window, just like Exxon has."
Canadian oil and gas executives have been vocal recently about they what they see as an increasingly rosy outlook for fossil fuels.
Last week, Enbridge CEO Greg Ebel spoke to the Toronto Region Board of Trade about why he thinks a Canadian liquefied natural gas (LNG) industry could be part of the solution for the global energy crisis.
And Suncor Energy Inc.'s chief executive Rich Kruger told analysts on a conference call earlier this year that while lower emissions energy is important, the way for Suncor to win in today's business environment is to focus on its core oilsands assets.
"Outwardly, the oil bulls are growing," said Duncan Kenyon of Investors for Paris Compliance, which takes financial positions in Canadian companies in an effort to hold them accountable to their net-zero emissions promises.
"It's obviously great times for them right now and there are short-term gains to be had."
But Kenyon said the very fact that companies are favouring short-cycle, disciplined growth over big-spend, long-cycle projects shows there is still a lot of uncertainty in the industry about the pace and scale of the coming energy transition and how the oil industry will be affected.
"I think the industry and investors in this sector are really struggling to understand what's happening and how to prepare for these emerging risks," he said.
"And these are emerging risks that have the potential to flip-flop the energy system on its head, and fossil fuels end up on the bottom."
This report by The Canadian Press was first published Oct. 11, 2023.
With files from The Associated Press
Comments
OK, so we know they're evil and greedy and all that. But they're also idiots. The transition is happening--a bit too slow to save our bacon, but it is speeding up and it is definitely going to continue. Not so much because of policy, although there is some of that, but because of technology. Renewable electricity + electric things is more efficient, cheaper, far less polluting, generally just better, than fossil fuel technologies.
And so, oil demand is going to peak, and it's going to peak soon. And here are these cretins doubling down like their ownership of the politicians is complete enough to stop it from happening--except, their policy success has been almost entirely on the supply side. They've managed to keep the oil production business going, keep their subsidies and get governments to permit more exploration and deep sea rigs and pipelines. But they haven't been able to stop the move to electric cars, for instance, and heat pumps are hitting that exponential curve too. And electric cars might not be the best solution to climate change, but they're enough to dump oil demand, and within not too many years they're gonna be the majority of cars sold. What's gonna happen to these dipsticks' big new investments in fossil fuels then? I'm going to be laughing so hard when demand passes peak and all the investors head for the exits.
And infuriatingly they'll laugh all the way to the bank.
Probably not idiots, more likely psychopaths concerned only with the making of hay while the sun shines.
Bang on.
Obviously the project planners chose to ignore (or bury) the last three or four annual reports from the IEA. How many of them are aware of geoscientist David Hughes' independent extensive analysis of US shale oil and gas and our Montney and Horn River basins? The decline rates, methane escape and debt-driven drilling are routinely underestimated.
Then you've got the demand destruction by cheap renewables and electric motors that have a directly proportional inverse effect on fossil fuels, as well put by Mr. Polson. And waiting in the wings are the export and domestic markets now on the cusp of massive demographic (and therein economic) decline, especially China in the next 30 years. Convert all the above data to curves and you've got some pretty mountainous geometry, none of it beneficial to the fossil fuel industry, up or down.
These investments seem to be for a retirement party, one last bash before withdrawing to count their billions while the Earth heats up and humans struggle. It'll be hard, but I think we'll pull through with the right adaptation strategies that must, without doubt, lend a helping hand to the developing world.
Maybe the one good thing coming out of this will be seeing the Danielle Smiths and Scott Moes having their economic rug pulled out, which ultimately means clearing the path for better people to lead in this country without subservience to Big Oil.
Enjoy every sunny day.