šŸ›¢ļø Only Fools Follow 'Follow This'

Investors Too Embarrassed to Hold Oil & Gas Stocks

Good morning; here's what the Oilman has for you today:

  • Investors Too Embarrassed to Hold Oil & Gas Stocks

  • Only Fools Follow 'Follow This'

  • Tweet of the Day

Investors Too Embarrassed to Hold Oil & Gas Stocks

An oil and gas stock rally that began two years ago is fizzling out, with the energy sector on the S&P 500 down by 5% since the start of 2023.

The reasons include fears of a recession, inflation, lower well productivity, andā€¦investor ā€œdiscomfort.ā€

The thing about cyclical industries is the cycle

U.S. energy stocks have enjoyed two years of outperforming the S&P 500 thanks to an oil price increase driven by post-pandemic demand recovery.

Itā€™s funny how BP and IEA expected demand to never return to pre-pandemic levels.

Instead, it didnā€™t just return to these levels; it has already exceeded them.

Demand, in fact, is heading for an all-time high of 102 million bpd this year.

Oil execs must have laughed hard when they saw the doom-and-gloom demand forecasts.

They took a break from laughing to report yet another strong quarter for January-March this year.

At the same time, they didnā€™t hide the problems:

  • Costs have gone up by double digits

  • Well productivity is not what it could be

And prices are down, which will mean a decline in new drilling.

This should set the stage for higher prices, but will it also push stocks higher?

It could, in fact, push them lower becauseā€¦

Investors are ashamed of holding oil and gas stocks

ā€œThe market and investors are still uncomfortable with oil and gas,ā€ Trisha Curtis, CEO of PetroNerds, told the FT.

ā€œThe companies are not being valued to their assets or what theyā€™re producing.ā€

Basically, investors are selling oil and gas stocks because itā€™s not trendy or politically correct to hold them.

Even though oil and gas dividends are higher than those in finance and much higher than those in tech.

Who wants to be in the cool kids club anyways?

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F

Only Fools Follow ā€˜Follow Thisā€™

A proxy advisory firm has recommended Shell shareholders vote against a resolution aiming to enforce stronger emission commitments on the company.

The resolution comes from activist group Follow This (yes, thatā€™s the groupā€™s name).

Shell itself has advised voting against the resolution.

Donā€™t Follow Follow This

Sure, itā€™s normal for an oil and gas company to tell shareholders not to vote for a resolution that could harm its core business, but itā€™s a bit more complicated.

Follow This wants Shell to set absolute emission reduction targets.

Shell doesnā€™t want to.

Shell wants to keep track of the intensity of its overall emissions.

And proxy advisor ISS agrees.

Hereā€™s why this is clever:

  • If Shell tracks the overall intensity of its business, it can reduce it without having to reduce oil and gas output.

  • It could do that by buying carbon offsets, for example, or using wind and solar for electricity generation in the field.

  • If it agrees to make specific emission cuts ā€” absolute targets ā€” it would have to cut output.

And itā€™s not just Shell that groups like Follow This are targeting. TotalEnergies, BP, Chevron, and ExxonMobil are all under attack. And yetā€¦

Activist pressure on the wane

A couple of years ago, it was like activist shareholders held all the cards.

They won board seats; they set policies; they pushed emission targets.

Enthusiasm about all this seems to be on the wane.

Look at Follow This:

  • In 2021, at the Shell AGM, they got 30% of the votes.

  • A year later, they got just 20%.

  • Now, a firm advising a lot of shareholders is saying, ā€œVote no.ā€

It looks like shareholders may have had enough activism.

Around the Global Patch

šŸ‡ØšŸ‡¦ Wildfires take toll on Canadian energy companies in Alberta.
šŸ‡°šŸ‡· South Korea's nuclear plan threatens LNG Demand.
šŸ‡®šŸ‡¹ Italy's new LNG plant receives the first shipment.

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