A hedge fund that beats ExxonMobil says it will have to cut oil production

Activist investors who have invoked the dangers of climate change to wins a wonderful proxy battle against ExxonMobil this week said the above needs to cut oil production, indicating that they will continue to press management to shift the strategy in response to the shareholder vote.

“They need to position themselves for success,” said Charlie Penner, who managed the No. 1 engine hedge fund’s campaign against the company. “You certainly believe that would mean less oil and gas production going forward.”

Engine No. 1, named after a sign of fire in San Francisco, launched its bold effort in December, appointing four directors to Exxon’s board and warning of the “existential risk” posed by its commitment to fuels. fossils.

The chutzpah show unleashed a hedge fund founded last year against the world’s most famous oil company, with colossal geopolitical power and financial weight.

One on Wall Street more expensive proxy fight culminated in Wednesday’s unusual annual meeting, when ExxonMobil tested what critics described as the company’s version of a senatorial filibuster, delaying the close of voting while holding an impromptu break of an hour before executive director Darren Woods raises questions about the company’s strategy.

It was the first time Exxon he had dealt with a contested vote of the shareholder of this nature.

“Like many things we saw in this campaign, the way they handled the meeting was under such an iconic partnership,” said Chris James, founder of Engine No. 1 in an interview with the Financial Times.

“Watching that meeting yesterday was such a perfect example of how you don’t realize that the world has changed. It was all on display.”

In the end, Exxon announced that the stock would have elected two candidates for Engine No. 1 after a preliminary vote count The fund expects a third to be announced when the official vote count is in, probably by the middle of next week.

The No. 1 engine will keep a close eye on management behavior, Penner said. Some analysts have suggested that Exxon’s management might simply ignore the fund’s new directors.

“I wouldn’t recommend it,” he said.

BlackRock and Vanguard, Exxon’s two largest shareholders, both support some of the directors nominated by Engine No. 1 – a rebuke to the company’s management that environmentalists have announced a new era for Wall Street’s approach to climate risk.

But Engine No. 1 was clear that his campaign was concerned about Exxon’s financial underperformance in recent years as far as the weather is concerned.

“Exxon thought it was ideological,” James said. But Engine No. 1 was a “capitalist group, definitely not a profit,” he added. “Our idea was that this would have a positive impact on the stock price,” he said.

The hedge fund does not ask Exxon to repeat the type of move in renewable energy that BP has taken.

“BP has spent a billion dollars to buy half of a wind farm that Equinor has developed, it is not a good business model and it has been punished by the market,” Penner said, referring to the major recent deal with the Norwegian company.

Penner said the No. 1 engine will give Exxon time to develop a new strategy – but as the world moves to reduce carbon emissions, the changes would still be profound. Penner said a faster-than-expected energy transition undermined Exxon’s hypothesis about the long-term demand for its oil.

“What we’re saying is: plan for a world where maybe the world doesn’t need yours [oil] barrels, ”he said.

It would be an abrupt start for a company that currently produces oil and gas at the equivalent of nearly 4m barrels per day, or more than 4 percent of the world’s total, and has made long-term plans for a big new crude. oil projects in the United States and off Guyana.

Exxon said it would “welcome new directors” and “share our plans in detail with them and listen to their prospects.”

The success of Engine No. 1 has led to claims that a new era of shareholder activism may have begun. The fund holds a stake of about $ 50 million in a $ 250 billion company that less than a decade ago was the world’s largest by market capitalization. Other companies are on target.

“Our ambitions are clearly broader than Exxon,” James said.

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