Monday, June 21, 2021

    Moody’s: Credit Risk Is Growing Faster For Big Oil

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    This week’s climate-related actions in boardrooms and courtrooms involving some of the largest international oil companies signal rising threat to the sector, Moody’s Investor Service said in a comment on the industry.

    “A new court ruling against Royal Dutch Shell and shareholder votes at ExxonMobil and Chevron highlights the increasing credit risk for major oil producers over concerns about climate change,” Moody’s said.

    This week, shareholders at the two largest U.S. oil corporations, Exxon and Chevron, showed with votes at the annual shareholders’ meetings that they want more climate action and specific climate-related policies from the oil majors to cut emissions and stay relevant in the energy transition.

    At Exxon, activist investor fund Engine No. 1 won board seats in a vote that showed more shareholders want changes to the way the oil supermajor works now and prepares for the future.

    At Chevron, shareholders backed a proposal that the company cut its so-called Scope 3 emissions, the ones generated by the use of its products, in another powerful statement from investors that they want the climate issue addressed.

    In the Netherlands, Shell was ordered by a court to slash its net carbon emissions by 45 percent by 2030.

    Commenting on these climate-related actions at Big Oil, Moody’s said, as carried by Reuters:

    “These actions represent a substantial shift in the landscape for oil companies, which had previously prevailed in courts, and largely fend off significant shareholder votes, on climate-related matters.”

    This week’s most important development was Exxon losing board seats to the activist investor Engine No. 1, according to the rating agency, because it “likely presages similar results in future board elections at other U.S. oil companies.”

    Moody’s added that Exxon’s board vote was also the most important because it is binding, unlike the court case, which can be appealed.

    Rising shareholder demand for investment in climate policies would raise Big Oil’s capital costs and could reduce the availability of capital for oil firms failing to meet investor expectations, according to Moody’s.

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