Chevron Starts Process to Weigh Scope 3 Strategies

Chevron CEO Mike Wirth is ready to get to work devising a plan to reduce the California supermajor's so-called Scope 3 emissions, and hopes to engage with investors around the tradeoffs associated with different paths. "We're in the process of considering what we'll do. We'll have some dialogue with the board about this," Wirth told investors at the Bernstein Strategic Decisions Conference on Wednesday. The comments follow last week's pivotal shareholder meeting (OD May27'21). Nearly 61% of investors supported a resolution calling on Chevron to "substantially" reduce the emissions of the end-use of its products over the medium and long term. The resolution allows Chevron to determine the specific strategic course it takes. But shareholders typically look for companies to (1) define concrete targets and (2) lay out clear plans for immediate action (NE Jun.3'21). Power Struggle Wirth noted that one tool Chevron is not going to grab for is solar and wind power generation and distribution. “It’s a pretty crowded space. There’s no shortage of capital available. The returns are known -- and kind of single-digit,” Wirth explained. "Our investors can identify and diversify into that if they want that exposure, and they can do that more effectively than if we were to." That view -- shared by rival Exxon Mobil -- puts a dividing line between the US and European majors, which plan to build out significant power businesses to offset declines in oil and gas output (OD Jun.1'21). Wirth feels comfortable making this judgment given that solar and wind are well-established businesses that Chevron can thoroughly evaluate. He won’t, however, rule out other low-carbon alternatives such as hydrogen and carbon capture and storage (CCS) that have yet to come into their prime. Chevron’s recent commercial forays into low-carbon energy have centered around negative emissions fuels like manure-fed renewable natural gas and a bioenergy-CCS power plant to run on almond tree waste. It has also stepped up its marketing of renewable diesel (OD Mar.11'21). Corporate Conundrum Wirth said the company's recommendation that shareholders vote against the measure did not signal a view that Scope 3 emissions should be ignored. He noted that last Wednesday's wider events -- which also saw a board revolt at Exxon and a Dutch court rule that Royal Dutch Shell must adopt more aggressive emissions reductions -- send a clear message to the industry. "It says people care about this issue -- and we get it," he said. "I know our shareholders care about it because I hear it from them every day." Chevron's pushback was instead rooted in its concern that company-level Scope 3 targets might do little to reduce global emissions if demand for oil and gas does not significantly decrease. Instead, Wirth argued, emissions might even rise if higher-emitting companies are the only ones left to produce since they often escape public scrutiny. Wirth claimed that Chevron is a top-quartile producer in terms of carbon intensity, putting it "well below" the industry average and "way, way, way" better than bottom-quartile producers. "My argument would be that you should want the best producers to be meeting the most demand that they can so that it’s not the dirtiest producer, but actually the one that's on the best trajectory,” he said. Wirth added his long-held view that Chevron is not interested in emissions reduction strategies that rely on "just shuffling … assets around in our portfolio to … less-efficient operators." The concerns are not unfounded. A report this week found that private Hilcorp, which purchased BP’s Alaska assets, is the US' largest emitter of methane among oil and gas producers, emitting more than 40% more than much-larger Exxon. On an emissions intensity basis, four other US private firms fare even worse than Hilcorp (OD Jun.2'21). "We try to have what we call an honest conversation about this," Wirth said. "We really genuinely want to be part of the solution and have people understand where some of the tradeoffs are and where the costs are." Casey Merriman, Phoenix