Exxon (NYSE: XOM) is clearly under attack.
The major oil and gas producer has been the focus of an ongoing investigation that was launched by New York Attorney General Eric Schneiderman.
http://https://www.youtube.com/watch?v=DDIb2uEirT0
It started as an inquiry to determine whether or not the company lied to the public about the risks of climate change and how those risks might affect shareholders.
As reported in the New York Times, the investigation focuses on whether statements the company made to investors about climate risks as recently as 2015 were consistent with the company’s own long-running scientific research.
The inquiry would include a period of at least a decade during which Exxon Mobil funded outside groups that sought to undermine climate science, even as its in-house scientists were outlining the potential consequences — and uncertainties — to company executives.
In response to that investigation, Exxon rallied its friends in Washington to earn their keep. The result: Representative Lamar Smith subpoenaed Schneiderman over the investigation.
That battle is still underway, but the New York Attorney General is not relenting on his attacks on Exxon.
Questionable Estimates
Last week, the Wall Street Journal reported that Schneiderman had requested that Exxon explain why it hadn’t written down the value of its oil fields as a global plummet in wholesale prices pushed all of its rivals to chop billions from their estimates.
Analyst Jeffrey Weiss followed up on the latest probe launched by Schneiderman, noting that Exxon’s drilling business has lost money for six straight quarters.
It jumped into exploring for natural gas in shale fields shortly before the wholesale price of gas dropped by half. But it’s not taken any writedowns since wholesale prices collapsed. Other companies in the field have written down. Some by a lot. Chevron chopped $3.9 billion this year. Chesapeake Energy has taken $16 billion in impairments in the past couple of years.
The Journal says Exxon’s refusal to cut the estimated value of the oil fields has helped keep the stock value from falling as far or fast as its rivals.
Although questionable, Exxon has not done anything illegal. Its results are in accordance with the standards set by the SEC. Certainly Schneiderman knows this. But the bottom line is that the New York Attorney General wants to put more heat on Exxon. And that’s exactly what he’s doing.
The Fuel of Tomorrow
Exxon has little to fear from this investigation. Just as it has little to fear from any investigation into the claim that the company purposely misled the public on climate change in an effort to insulate its business from potential climate change regulation.
Of course it misled the public. The suits over at Exxon are trying to run a business. Climate change is a realistic impediment to growing revenues, so it acted in a manner that would protect it from increased regulation and operational costs.
Whether or not such a thing is right or wrong is irrelevant. Because the truth is, it’s not Exxon that’s responsible for contributing to climate change. It’s consumers.
Should alcohol companies be held accountable for drunk driving incidents?
Should gun companies be held accountable for gun violence?
Should computer companies be held accountable for hacker attacks?
Most people who drive cars rely on an outdated internal combustion engine. It is this engine that makes it possible for companies like Exxon to make boatloads of cash. And while we are definitely at the beginning of a major transition in personal transportation, the internal combustion engine still has a good 20 or 30 years left before it falls victim to a destiny that’s already been shared by the typewriter, the Betamax machine, and rotary phones.
That means oil investors still have a couple of decades to exploit the world’s reliance on crude for profits.
Of course, I’m not suggesting you run out and buy shares of Exxon. In fact, I don’t even mess with oil and gas stocks anymore. Sure, there’s plenty of life left in them, but the future of personal transportation is, without a doubt, electric. And that’s where the real money is in the transportation game.
Tesla (NASDAQ: TSLA), GM (NYSE: GM), and Nissan (OTCBB: NSANY) continue to pump out product, and early adopters continue to buy. Moreover, every major automaker on the planet now has multiple electric cars either on the road or in production. It doesn’t take a rocket scientist to see where this is going.
So looking out over the next five or ten years, the big money isn’t going to be in oil. It’s going to be in lithium-ion batteries, or more specifically, lithium — the “fuel” of tomorrow.
Lithium-ion batteries are powering the future of transportation, and lithium is a commodity that holds a lot more promise for growth than oil.
Look, if you want to make money, you have to be nimble. You have to be flexible. You have to be able to adapt to new environments and new technologies without letting partisan buffoonery and philosophical prejudices cloud your judgment.
In another 10 to 15 years, most carmakers won’t even be making internal combustion vehicles. So when considering long-term investment opportunities, it simply makes no sense to ignore the lithium space. To do so would be, for lack of a better word, stupid.
To a new way of life and a new generation of wealth…
Jeff Siegel |
