Change happens gradually, and then suddenly. This week, the endgame for oil companies became a lot closer and a lot more evident, suddenly, discontinuously, a jump.
The world of energy is a vast part of the global economy: perhaps as much as $10,000 billion per year. Thatâs so much money that the giants that dominate it, particularly the oil behemoths, arenât giving up easily. Their grasp on that money gusher just got rather less tight. In one week:
- Two climate activists were voted on to Exxonâs board – a coup for a tiny investment advocacy firm.
- 60% of shareholders voted to force Chevron to lower its emissions – in its processes and in the use of its products.
- A Dutch court ruled Shell has to cut its productsâ greenhouse gas emissions by 45% by 2030.
A momentous week, summarized
Much has been written on this already (see HERE for example), but letâs review and put into context to see why this is momentous.
- Exxon-Mobil LINK and LINK came into the week as perhaps the oil giant with the most out-of-touch expectations – many years of INCREASED oil output. But that was sharply rebuked when a small activist fund, Engine No. 1 (see below) secured enough institutional support, particularly from BlackRock, to put at least two of its candidates on the giantâs board of directors. Shareholders also approved measures calling for annual analyses of climate impact.
- Chevron LINK. Shareholders voted: 61% in favor of targets to reduce Scope 3 emissions (LINK HERE for definition – basically all downstream uncontrolled uses); 48% for a report on impacts of a 2050 net-zero scenario. Thereâs no way to look at these numbers and not see that shareholders understand what the executive leaders may not: oil is dying and Chevron doesnât know what to do.
- Shell: LINK and LINK The Anglo-Dutch oil giant received its order from a Dutch court (a panel of judges) in the outcome of a lawsuit filed by the Netherlandsâ Friends of the Earth group; the group alleged that Shell violated human rights by undermining the Paris Accords. Shell, of course, is appealing and itâs hard not to think that the gain against Shell is the most fragile of the weekâs trifecta. Money beats well-meaning judges.
- Engine No. 1. Who? LINK and LINK from which: “an investment firm purpose-built to create long-term value by harnessing the power of capitalism. We believe a companyâs performance is greatly enhanced by the investments it makes in workers, communities, and the environment. We believe that over time the interests of Main Street and Wall Street align, and we can engage as active owners to create value by focusing on this alignment.” The six-month-old firm doesnât have a Wikipedia entry as of this writing.
The simple lesson from the week is: changing oil firmsâ future by shareholder and investor demand seems to be a winning strategy. Expect more of these. A lot more.
What banks want, they get
The battle for the climate wonât be won until banks are onside. But once that happens, victory for a healthy climate and a new economy is assured. What bankers, investors, shareholders need to see is that these firms fully embrace the inevitable future. That is the mind shift underpinning this weekâs news. Oil companies must embrace the transition or become fossils themselves.
They must act soon, for the economics of disruptive technologies never favor incumbents. Newcos, the startups, are valued on the basis of the opportunity they aspire to: billions, tens of billions, more. Oldcos, the incumbent giants, arenât valued on future prospects: theyâre already at scale. Instead, theyâre valued on the basis of their cash returns – dividends. Cut the dividends, cut the stock price. Or theyâre valued on their assets – but oil fields face declining value as the transition accelerates.
Why the new beats the old, every time
The difference between newco and oldco valuations drives startups, equipped with promising new technologies and underpaid entrepreneurs, to rich valuations compared to incumbents. Computer companies. Hard disk drives. Software companies. Telecom. Netflix. Cars. (Teslaâs market capitalization is a singular, perhaps bizarre, example of this: the valuation of TSLA alone is similar to the combined valuation of all the worldâs other car makers. LINK HERE)
Incumbents have only a brief, and early, window to make the transition to a new technology. After that, the narrative becomes one of decreasing asset values, lowering returns to investors, stagnating margins and revenues, declining belief in their ability to adapt, and a diminishing equity value and cash hoard with which to buy other firms. These feed a downward spiral that dooms slow-moving incumbents to economic extinction. Big investors will sellâand then even shortâtheir positions to protect against deepening losses, making those losses more profound. Oil giants will, one by one, fall out of major stock indices (Fortune 100, Dow Jones index, FTSE100, etc.) and then index funds must shed their shares.
Losses beget losses.
That spiral is closer. That two of the worldâs largest oil companies in one week received a significant push from institutional shareholders (and the firms that advise them) toward a future without their main product, oil, signals the beginning of the end of their business modelâoil extractionâand that major investors will push to make that happen.
And, that will inevitably mean improving opportunities and valuations for new energy alternatives and their investors. Soon, and at scale. Established oil companies should seize the moment to take their diminished but not yet destroyed equity valuation to make at-scale investments in post-fossil-fuel solutions. They should, butâif history is any guideâmost wonât.
They should heed the caution expressed in Ernest Hemingwayâs “The Sun Also Rises”, whence originates the idea that opened this piece:
“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually, then suddenly.”
About The Author

John is a physicist and business analyst, working on macro-economics of the end of fossil fuel s. His analyses investigate and bild data to understand the transformation of the global economy that will emerge as the global economy moves away from burning oil and coal. Separately he leads a cyber security startup and advises a major European firm on technology strategies. Earlier work includes as a Google [x] senior director, overseeing an unannounced project, working in Taiwan leading a tech startup, and as a Monitor group partner, leading strategy analysis for technology companies – particularly where the strategies needed deep insight into the underlying physical technologies.He has a PhD in physics from Imperial College, London, and with art education from the Royal College of Art. He now lives in a floating home in Sausalito, California, with his wife, noted tech pioneer Dr. Mary Lou Jepsen, as well as a small dog and a collection of paddle boards and kayaks.