Putin gave oil a new lease of life – we’d be mad if we didn’t take advantage of it

Putin

Putin

I know it’s a cliché, but “keep knitting” has long been the best advice you can give to a CEO who, bored with the dreary old job of doing what he’s good at, dreams of taking his company to the next level. exciting and politically privileged pastures are new.

Do not do that. Stay with the main purpose of the company. Focus on the top and bottom lines, not the blue background. Leave the supposedly sun-drenched highlands of the future for others to harvest if they can.

It’s a lesson that both Shell and BP have had to learn the hard way after seeing their stock prices far underperform their US counterparts, ExxonMobil and Chevron, in recent years.

Difference? BP and Shell have seen the light and put the full force of their balance sheets into today’s politically motivated energy transfer. Exxon and Chevron, on the other hand, have largely abandoned the renewable energy dream and focused on what they know best, dirty old oil.

The payoff from Putin’s war was off scale. “We said you’d need us again one day,” says Exxon CEO Darren Woods, “and it looks like we were right.

Despite the dominance of environmental, social and governance (ESG) programs among those in command at Britain’s biggest companies (institutional investors), after all, money matters and markets have taken one last look at BP’s conspicuous Damascus conversion. a week later he returned to the business of fully exploiting his oil and gas reserves, and began to open corks from champagne.

Shares rose 16% after announcing that the company was cutting planned oil production cuts. This must have come as a real shock to CEO Bernard Looney. He sincerely believed that he was doing the right thing by refocusing the company on renewable energy and other forms of climate change mitigation, but…surprise…it turns out there is still a lot of money to be made from hydrocarbons; alternatives, by contrast, struggle to generate any income.

Looney’s reversal is a big embarrassment considering what he’s focused on so far and it’s not clear if he can survive it. In this way, we will get even more money to invest in the energy transition, he argues.

In truth, he would be better off sticking with the cash cow that is oil and gas, paying out returns to investors in the form of dividends and buybacks, and leaving the markets to decide how best to invest in production.

In saying this, I will not comment on the rightness and wrongness of emission reduction targets, but only to note that traditional forms of energy production have been given new life since Putin’s invasion of Ukraine, and that the reality is that these industries are still quite clear that they have more to come. work hard before they are sent to the dustbin of history.

From a commercial standpoint, it would be insane if companies like BP and Shell lost their market power to Exxon, Chevron, and the Middle East, Russia, and China in pursuit of the holy grail of a carbon-free future. Meanwhile, the unexpected resurgence of the oil industry breeds another form of embarrassment—wealth embarrassment.

High prices brought record profits. It doesn’t matter whether the supposed price of sin is being invested back into renewable energy sources or not, high profits have created their own form of condemnation. It’s not just the big oil companies that are reaping the enormous rewards of the changed dynamics of our time.

This week and next, it is the turn of major UK banks to report multi-billion-pound profit gains. As interest rates rise, the net difference between deposit and lending rates increases with them.

Bernard Looney - Daniel Leal-Olivas/AFP

Bernard Looney – Daniel Leal-Olivas/AFP

Suddenly, the banking sector is flooded with profits. The capital shortage that followed the financial crisis a decade ago and forced governments to step in to prevent the system from collapsing has turned into days of plenty. In the same way that everyone else’s standard of living is falling due to rising interest rates and energy prices, banks have excess capital flying out of their ears.

Every accounting gimmick will be used to keep reported earnings as low as possible, including increasing bad debt provisions as the recession intensifies, but auditors — and tax inspectors — don’t stop there. There should also be a cap on capital that can be paid out in the form of dividends and share buybacks.

However, this at least means that the taxpayer should now be close enough to recover the money spent on bailing out the banking sector ten years ago.

The NatWest Group will no doubt again use some of its profits to buy back additional shares from the government, which still owns a 45 percent stake in the bank. It won’t be like the price the government paid for shares, but if you take into account the bank fees and interest earned on loans and guarantees, the direct cost to the public purse of the banking collapse should have almost paid for itself by now.

In any case, the resumption of sector profitability will no doubt draw appalling condemnation from all quarters. It shouldn’t be, because with a looming recession and outdated IT systems that are decades out of date and urgently in need of an upgrade, banks will need all the capital they can get.

Be that as it may, banking stock prices are still far from recognizing the banking sector’s newfound financial health. Idiom: burned in milk – blowing on the water.

The economy desperately needs a decent rate of return to fund investment and growth, but the tragedy is that profit is once again becoming a dirty word. When will the outrageous ignorance of public opinion ever learn?

Content Source

News Press Ohio – Latest News:
Columbus Local News || Cleveland Local News || Ohio State News || National News || Money and Economy News || Entertainment News || Tech News || Environment News

Related Articles

Back to top button