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Energy Reality Wins at Exxon Mobil Annual Meeting (Atlas is not shrugging at this substance-over-form company)

If only the United States economy were as strong as ExxonMobil. If only energy realism and free-market consumer service were guiding lights in Austin, Texas; Washington, D.C.; and other seats of political power.

The good news from Exxon Mobil’s annual stockholders meeting in Dallas earlier this week is that the company is focused on its core competencies amid the energy politicization around it. No Enron political machinations here!

In fact, Exxon Mobil is the anti-Enron of corporate America, a rebuff to Ken Lay, who once worked at Exxon, and Jeff Skilling, who declared in 2000: “You will see the collapse and demise of the integrated energy companies around the world. They are going to break up into thousands and thousands of pieces.” (1)

Key Messages

The key messages of Exxon Mobil CEO Rex Tillerson were: 

  1. Petroleum as a primary energy source is the future, not only the recent past. (Comment: renewable energies once had a 100% market share, corresponding to mankind’s energy poverty era.)
  2. Developing politically dependent renewable energies such as wind and solar are not the company’s forte. (Comment: Exxon Mobil is implicitly practicing Principled Entrepreneurship ™, a socially responsible business model.)
  3. If carbon dioxide is to be priced, a tax is preferable to cap-and-trade. (Comment: Tillerson has not come out in favor of pricing CO2 per se, to my knowledge, and most economists would pick the same of the two options.) 
  4. Win-win emission reduction technologies and strategies are better than politically correct/economically incorrect ones. (Comment: the jury is still out on this, of course, but it will be interesting to see how Exxon Mobil’s R&D bets turn out relative to those of the other energy majors.)

In his writeup in the Ft. Worth Star-Telegram, “Exxon Mobil CEO Tells Shareholders that Fossil Fuels Have Long Future,” Jack Smith described a proud company in a proud moment.

Exxon Mobil Chairman Rex Tillerson issued a ringing defense of the oil titan at the company’s annual meeting Wednesday, where 11 shareholder proposals, all opposed by management, were roundly defeated in a spirited gathering at the Morton H. Meyerson Symphony Center.

Tillerson praised Exxon’s record-breaking financial performance in 2008, its handsome returns to shareholders in recent years, its technological advances that have greatly enhanced oil and natural gas recovery, and its efforts to reduce the environmental harm of its far-ranging operations. He defended the company’s large buybacks of company stock, saying that they have increased value to shareholders.

Under the subtitle, “Company focus intact,” Smith continued:

Tillerson strongly indicated that Exxon’s primary focus in coming decades will likely remain on its core businesses of oil and gas exploration and production, refining and chemicals. He said there appears to be “a pretty bright future” for drilling in previously untapped shales — such as the natural-gas-rich Barnett Shale of North Texas and Haynesville Shale in northwest Louisiana and East Texas — as a result of technological advances in horizontal drilling and hydraulic fracturing.

Renewables, Climate Change Policy

Regarding climate-change policy. Smith reported:

If Congress passes climate-change legislation designed to slow global warming, Tillerson said he prefers implementation of a carbon tax rather than a “cap-and-trade” system being most strongly considered in Washington. A carbon tax would be “far more efficient,” he said.

The dissident shareholders resolutions, 11 in all, were defeated easily–and by wider margins than last year on most counts.  “Environmental proposals fared [the] worse,” reported Smith. “Proposals to adopt goals for limiting greenhouse-gas emissions, craft a policy for renewable energy research and development, and establish a task force to report on the likely consequences of climate change drew 29, 27 and 10 percent of shares voted, respectively.”

Tillerson elsewhere has made his points clear regarding wind and solar, and his directors and the large majority of company owners seem to agree. And company profitability has confirmed this strategy, as Michael Lynch has noted at MasterResource. Moreover, Exxon Mobil’s stick-to-the-basics strategy is now in favor at rivals BP and Shell.

Company critics got in some complaints from the floor. As summarized by Smith: 

The Rev. Michael Crosby, a Franciscan friar from Milwaukee who deals with corporate responsibility issues, told Tillerson that he has “a moral obligation” to address global warming, which many scientists say is aggravated by the burning of coal, oil and natural gas.

“I think Exxon Mobil should put a warning on every one its gas pumps .?.?. about the dangers of burning fossil fuels,” similar to tobacco companies putting warning labels on cigarettes, Crosby said.

Carbon dioxide emissions are hardly a health hazard, as are the criteria pollutants. But on this theme, perhaps somewhere in the 943-page Waxman-Markey bill (or “monstrosity” using James Hansen’s description of cap-and-trade) there is this requirement: “Danger: carbon rationing may be hazardous to your wallet and thus your health.” Gasoline is now an environmental product, an environmental success. In fact:

The average new car on the road today runs 97 percent cleaner than the average car built in 1970, thanks to a combination of cleaner gasoline and more efficient engines. As a result—although there are more Americans driving more miles in more cars than ever before—automobile-related emissions are down 41 percent since 1970.

“Green” Defeat

Prior to the meeting, there was publicity about the green dissent. Had their moment come in this new political year? Kristen Hays of the Houston Chronicle wrote on the eve of the event: 

As President Barack Obama continues pushing his environmental agenda, Exxon Mobil — the slowest of the oil majors to embrace investment in renewable energy — faces a repeat lineup of green shareholder proposals at its annual meeting Wednesday.

The world’s largest publicly traded company has not changed its view that its business is oil and natural gas, and it won’t invest in renewables beyond research until they’re profitable without subsidies.

But some influential proxy advisory firms note that such proposals have steadily gained investor support, and the perception that Exxon Mobil has no use for renewables continues to damage its reputation.

“The company’s lack of a comprehensive policy on renewables has left many investors with the perception that the company is unwilling to consider such options in the future,” said New York-based RiskMetrics in its proxy paper on Exxon Mobil.

“Such a perception has led to substantial reputational damage to the company on this issue,” RiskMetrics said.

San Francisco-based Glass Lewis & Co. noted that oil and natural gas drive Exxon Mobil’s profits, which surpassed $45??billion in 2008.

But not much happened, certainly dashing expectations of Exxon Mobil’s critics who really had little to say. Hays reported in the Chronicle (and the Dallas Morning News):

Sister Patricia Daly, a nun with the Sisters of St. Dominic of Caldwell, N.J., has repeatedly sponsored a proposal that Exxon set goals to cut emissions from its products and operations and issue a report to investors on that plan by Sept. 30. …

Daly said Exxon Mobil has improved energy efficiency, which has helped its bottom line. But given policy changes driven by the Obama administration and Congress, she said, “We’re not confident our company is ready for the financial impact.”

The proposal garnered support from 29 percent of shares voted, a dip from 30.9 percent last year.

Another shareholder, Tracey Rembert, representing the Service Employees International Union, pushed a repeat proposal that Exxon adopt a policy on renewable energy research, development and sourcing and report its progress to investors next year. She urged the board and Tillerson to be clearer about the company’s interest in renewables.

“We need clarity on this, particularly now with policy unfolding,” she said. “If you’re not going to pursue it, just say so.”

[But] shareholders gave the renewables proposal 27.3 percent of votes cast, a slight dip from 27.5 percent in favor last year.

Hayes also reported about Exxon Mobil’s worldview:

Tillerson reiterated the company’s outlook — which mirrors projections from the U.S. Department of Energy and the Paris-based International Energy Agency — that fossil fuels will provide the vast majority of energy through at least 2030.

Although renewables and alternatives are growing, their overall piece of the energy mix will remain small until they reach the massive scale at which fossil fuels are used. And Exxon won’t invest beyond research until renewables are profitable without subsidies, Tillerson said.

“The challenge is scale, the rate of penetration and the deployment,” he said. “Our approach to alternative energy in the near term is alternative ways to consume, which is less damaging.”

Hays also mentioned this exchange on the global warming debate, which captured the views of much of the auditorium:

Rick Wilson, another shareholder, offered the view that climate change is “entirely natural, not man-made,” so humans can’t fix what they didn’t cause. His comments generated applause from many shareholders who attended the Dallas meeting.

Tillerson said simply, “It’s a complex area of scientific study.”

And Tillerson is right. It is complex, and it is right to question those who say 1) the science is settled, 2) the science is settled in favor of climate alarmism, and 3) government-forced energy transformation is necessary based on the physical science of the human influence on climate.

Still, it is probably incorrect to state, as did Wilson, that climate change has no anthropogenic component. Chip Knappenberger will question such “ultra-skepticism” at a future post at MasterResource.

(1) Quoted in Bradley, Capitalism at Work: Business, Government, and Energy (M & M Scrivener: 2009), p. 117.

6 comments

1 Ed Reid { 05.31.09 at 7:33 am }

A carbon tax may well be a more economically efficient way for the federal government to raise revenue to redistribute. It is certainly not a more technically and economically efficient way to induce and manage an actual reduction in carbon emissions, assuming that reducing carbon emissions to “save the globe” is really the point of the exercise.

A carbon tax falls equally on those for whom reduction of carbon emissions is cheap and easy and on those for whom it is technologically impossible or economically prohibitive currently. Cap & trade, on the other hand, provides flexibility for those for whom reductions are more difficult or more expensive to purchase allowances from those for whom the reductions are cheaper and easier.
However, in its simplest form, cap & trade does not provide an incremental stream of redistributable revenue to the government. The “cap & tax” variant, on the other hand, provides the government revenue stream by adding allowance sales or auction expense to the already daunting investments required to actually reduce emissions. The greatest concern for the government under “cap & tax” is the fact that there is a revenue stream flowing between those required to comply which can only be captured through the existing income tax code; and, only on a net basis.

A carbon emissions cap, established at current emissions rates and reduced by 2% per year through 2050, would achieve the Administration’s “wish” for an 83% reduction by 2050. The ability to trade would reduce the overall cost of compliance; otherwise, the trading would not occur.

Question: “What carbon tax rate or carbon price would accomplish the “wish” on schedule?” I believe the answer is both unknown and unknowable. I am sure the federal government is perfectly capable of adjusting the rate, over several decades, to achieve the desired result.

(I am concerned that I used the phrase “on the other hand” twice in the same comment. I am not even an economist!)

2 Roger { 05.31.09 at 9:48 am }

We need more CEOs who reject subsidies and refuse to give in to political correctness. It’s too early to give up and “go John Galt,” at least in America. (Venezuela is another story.)

3 Noblesse Oblige { 06.01.09 at 6:10 pm }

I am proud of my former company for continuing to demonstrate that focus, competence, integrity, and robust core values remain the route to success. They will not line up to be fed at the Fed trough a la GE’s Immelt, who will then tell us how good cap-and-trade will be for us. He demonstrates the truth of Pushkin’s observation, “As long as you have a trough, there will be no lack of swine.”

Exxon Mobil simply will not play that game, and that is one reason it is hated by the political class, an in-the-tank media, and the various groups who seek the end of free market capitalism. The other key reason is simply that they are successful. Generate your own list of most hated American companies and you will also generate the list of the most successful: Exxon, WalMart, Merck et al.

4 Enron vs. Exxon Mobil: Polar Approaches to Energy and Public Policy — MasterResource { 06.15.09 at 1:02 am }

[...] have previously described Exxon Mobil as the anti-Enron. In an opinion-page editorial in yesterday’s Houston Chronicle, I contrasted the two [...]

5 Institute for Energy Research » Blog Archive » Enron vs. Exxon Mobil: Polar Approaches to Energy and Public Policy { 06.16.09 at 8:30 am }

[...] have previously described Exxon Mobil as the anti-Enron. In an opinion-page editorial in yesterday’s Houston Chronicle, I contrasted the two [...]

6 Henry chance { 06.23.09 at 9:24 am }

Awesome story. Exxon knows it’s identity. They have a mission and clarity. Too bad many companies shift with the wind shifts and have no foundation. Exxon collects and submits over 100 billion dollars every year in taxes. Most of the politically correct alternative energy providors survive on subsidy. when the subsidies/welfare dries up, they fold.

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