Exxon, Chevron make big oil acquisitions in the face of uncertain future for fossil fuels

Oil giants Exxon Mobil and Chevron have recently announced major acquisitions of oil companies, expanding their oil and gas assets.

Some analysts see these acquisitions as big bets on a fossil-fueled future, while others argue the moves could be viewed as consolidation in an industry that may be on the decline.

Those conflicting reads come amid similarly dueling projections on the future of fossil fuels more broadly: An international energy organization predicted this week that fossil fuels could peak this decade, while a U.S. forecaster recently said global energy emissions will increase through the middle of this century.

Regardless of broader questions, the energy companies touted the deals as good for business. 

Exxon this month announced it was purchasing oil and gas producer Pioneer Natural Resources and paying nearly $60 million for it. 

The move expands Exxon’s footprint in the Permian Basin, an oil and gas-producing area in West Texas and southeastern New Mexico. The company said its production in the basin would more than double to the equivalent of 1.3 million barrels of oil per day.

A press release from the company said the move would be “expected to generate double-digit returns by recovering more” energy.

This week, Chevron said it would acquire Hess, an oil and gas producer that’s also known for its toy trucks, for $53 million. 

A press release from Chevron touted Hess’s positions in Guyana and in the Bakken — an oil-producing region in North Dakota and Montana. 

Fernando Valle, a senior analyst at Bloomberg Intelligence, said the two acquisitions represent Exxon and Chevron doubling down on their oil business. 

He said the acquisitions show that “clearly, Exxon and Chevron don’t see the peak oil” coming as soon as projected by a report saying it could come this decade.

“I think they’re grabbing market share because others are pulling back, but I think within five years we’ll see that we need more development, more exploration, more supply,” Valle added.

The moves also come as major oil companies scale back climate and alternate energy efforts. Exxon pulled funding from efforts to turn algae into biofuel. BP earlier this year scaled back its climate ambitions, from a 35 percent to 40 percent emissions cut this decade to a 20 percent to 30 percent cut. In June, Shell dropped its plans to cut oil production. 

On the other hand, Tom Kloza, global head of energy analysis at the Oil Price Information Service, said he does not see the acquisitions as a vote of confidence for an oil-fueled future.  

“I disagree with the people who think it’s a vote of confidence for the persistence of fossil fuels. I think it’s a little less of a vote of confidence,” he said, saying sinking money into long-term projects like deepwater drilling would be more of a bet on fossil fuels. 

“There’s a weariness about what technology is going to bring in terms of electric vehicles and other solutions,” Kloza said.

Robert Weiner, a professor of international business at George Washington University, said if anything, he views the deals as consolidation in an industry without much prospect for growth. 

“To explore for oil and discover oil, that would be a bet on a fossil fuel future,” Weiner said. "Instead, they’re simply adding to the oil that they already have by buying other peoples’ oil. 

“All these oil companies have a lot of money sloshing around in their pockets. In the past, they would’ve invested in new exploration, but because the future for the industry is very clouded and murky, instead they’re doing something safe like buying other people’s oil.”

Meanwhile, the results of efforts to ramp down fossil fuels in the name of climate change are also unclear, made murkier by two recent reports that appear to draw opposing conclusions.

This week, the International Energy Agency (IEA), a group of major energy-consuming nations including the U.S., projected global demand for coal, oil and gas could peak this decade. 

It attributed this to “growing momentum” for non-fossil energy technology and “structural economic shifts” around the world. It said that the number of electric vehicles on the road and the proportion of renewables in the global electricity mix are expected to grow significantly.

On the other hand, earlier this month, the U.S. Energy Information Administration (EIA) projected energy-related emissions are expected to increase through 2050. 

The agency said this will happen as population and income increases “offset” the impacts of efficiency and lower carbon intensity. It said there will be some shifting away from planet-warming fossil fuels but not “enough” to combat growth. 

Antoine Halff, chief analyst at Kayrros, who was formerly at both the EIA and IEA, said even if fossil fuels peak, they will still be “part of the mix for a long time."

“There’s a little bit of a last man standing process going on,” he added. “Large companies with huge amounts of expertise, know-how, economies of scale, access to capital and so on, see an opportunity to distinguish themselves.”