Focus on these top engagement topics for the European Majors in 2024
Start your new year with this list of company engagement topics to support your conversations with the European oil and gas majors.
Our team has done the work to assess transition plans and performance and summarised the most critical topics for you.
Companies included are: BP, Shell, Equinor, TotalEnergies and Eni.
BP is at a critical juncture as we wait for the appointment of a new CEO and the key question is on which side of the fence BP’s next strategy will sit.
We see a company ahead of its peers in disclosing where it will invest in transition and some of the most ambitious emissions reduction targets behind Eni. However, it is also trying to appease traditional oil and gas shareholders, parading its sizable reserves that are available to drive high levels of oil and gas production post-2040 into 2050.
Momentum on decarbonisation requires maximum ambition, not a midway approach.
What critical transition elements must BP address to transition to a valuable low carbon business?
-
A continuation of BP’s emissions reduction targets, low carbon strategy, and investment in low carbon fuels.
BP’s ambition sits just behind its peer Eni in its goal to reduce scope 1 and 2 emissions by 50% (Eni,-70%) and Scope 3 emissions by 20-30% by FY30 (Eni, -34%).
It is the only major seeking to reduce oil and gas production by 11% by FY30 and has the highest low carbon investment ambition before FY30 at ~44% of Group Capex.
BP’s low carbon strategies over the last 15+ years have experienced many iterations, with long-term execution a challenge.
Earlier this year BP backtracked on its target to reduce oil and gas production by 40% by FY30 to 25% by FY30 (based on FY19 levels) and is now facing uncertainty in its future strategy as it awaits its new CEO.
-
BP articulates investment and returns well under its ‘Transition Growth Engines’, however, this is not sufficient to allow the market to quantify the value uplift from its strategy.
A clearer articulation of incremental returns from vertical integration, asset sell-downs, and a greater focus on customer-based strategies, underpinned by enhanced low carbon quarterly disclosure, is needed to inform emissions reduction targets.
Through the recent acquisition of Lightsource BP, the company has potentially gained an additional ~30 GW for its renewable pipeline.
It will have ~75GW of projects of which it needs to develop 60% to FID projects to meet its 50GW target by FY30.
-
We would like to see BP increase its ambition to transition its customers from oil and gas to low carbon post-2030.
Despite its strong ambition and progress to date, this year the company revealed a pipeline of reserves to sustain production capacity for 20 years.
With production targets of 2.3 M boe/d by FY25 and 2.0 M boe/d by FY30, we estimate BP would still produce until ~FY46 if it maintained FY30 levels of production.
Shareholders currently have little visibility on Shell's future plans for low carbon, after it cut its low carbon fuel targets including renewables, as well as EV charge points, and retail sites.
The opportunity for Shell now is to better quantify how its focus on sector-specific customer decarbonisation will contribute to its emissions reductions.
What do we want to see from Shell in FY24?
-
Our view is that Shell can not meet its net carbon intensity targets (20% reduction FY16-30, 45% FY16-35) without targets for low carbon fuels or oil and gas divestment.
Its strategy changed in May this year and its targets need to be updated to reflect this. We want to see scope 3 targets linked to customer decarbonisation, with key levers by customer or sector quantified.
Intensity targets must also set out the expected impact on absolute emissions from their own footprint, and this should not include avoided emissions from other sources.
What is the gap we see in Shell’s net carbon intensity?
To date FY16-22, Shell has reduced its net carbon intensity by 3%.
We forecast Shell will achieve only an additional 1% reduction in NCI based on its guidance for a ~30% increase in LNG sales and 1.4 Mboe/d in oil production.
-
We want to see a clearer breakdown of Shell’s future product mix by sales, to better understand what its business may look like in the next 7 years.
Shell's initial strategy was heavily focused on power, including generation, sales, and trading. Shell has moved away from generation but has not clarified if distributing power remains a key part of its strategy.
We would like to understand how much of its 2 to 4% ROACE uplift is expected to come from oil and gas compared with low carbon.
Shell has not quantified how its near term (FY25) levers of selling low carbon fuels, increasing EV charging, and distributing renewable power will influence its sales portfolio.
Shell has no targets for low carbon fuels and renewables, and has decreased its FY30 EV charge point target from 2.5 m to 200,000.
-
Our view is that Shell should not materially rely on offsets and CCUS to achieve their targets.
We want to see a clearer outline of Shell’s current stance on the use of offsets and CCUS, a key part of the previous strategy.
Under the previous strategy, Shell aimed for 100 Mt pa of offsets by FY30, and >25 Mt pa of CCUS capacity by FY35.
As an upstream-focused business model, Equinor has fewer levers to decarbonise than peers. Equinor alongside TotalEnergies has the least ambitious emission reduction targets.
Where it is doing well is its investment in low carbon, leading peers alongside BP at ~30-50%, and the build-out of its renewable pipeline 12-16GW.
Strategic discipline and a longer-term view are required if Equinor is to diversify its energy mix beyond oil and gas production.
What do we want to see from Equinor in FY24?
-
We don’t see enough on Equinor’s low carbon business proposition, what makes its approach unique?
How are they progressing their hydrogen market share goals - 10% of European market share by 2035?
-
Offshore wind makes up 95% of Equinor’s pipeline, where do they see opportunities for renewable energy returns?
Is there further risk for U.S. offshore wind projects like Beacon Wind II and Morro Bay?
-
Equinor needs to provide a clearer picture of the capital expenditures in Renewable Energy. In 2022, the disclosed capex for Renewables was $298 million, compared to a gross capex of $1.3 billion.
This underpins Equinors ambitious $23 billion guidance for Renewables gross capex between 2021-2026. What factors contribute to this discrepancy?
Equinor’s varying capex definitions make assessing and tracking ambition difficult. How can Equinor provide a clearer picture of Renewable Energy capex?
$23 billion: 2021-2026 Renewables gross capex guidance
$298 million: Reported Renewables capex for FY22
$1.3 billion: Reported Renewables gross capex for FY22
What factors contribute to this discrepancy?
-
Lack of disclosures for Low-Carbon Solutions makes it difficult to track low carbon capex. How open is Equinor to providing quarterly disclosures on the gross capital expenditures for Low-Carbon Solutions?
What could be disclosed for hydrogen and CCUS sector capital expenditure?
TotalEnergies has a peer leading renewables pipeline and a promising integrated power business showing signs of profitability.
However, TotalEnergies has the most aggressive oil and gas growth strategies in the medium term (19%), and the least ambitious emissions targets alongside Equinor compared to peers.
What do we want to see from TotalEnergies in FY24?
-
TotalEnergies should disclose the complete scope of emissions from energy product sales, including all physically traded and third-party volumes to understand the full exposure and influence over emissions.
This approach aligns with peers BP and Shell.
Based on disclosed oil and gas sales, we estimate TotalEnergies underlying emissions for FY22 was ~1.6 GtCO2e, compared to 485 MtCO2e reported.
-
We want to see TotalEnergies provide a quantified breakdown of how it will achieve a -40% scope 1 & 2 emissions reduction by FY30, given its ambitious plans for oil and gas growth. This includes quantifying the reliance on offsets and CCUS to meet its target.
TotalEnergies has achieved a -9% reduction in scope 1 & 2 emissions as of FY22. The company requires a further 31% reduction by FY30, while simultaneously growing oil and gas production an estimated 19% over the same period.
-
We want to see TotalEnergies provide quarterly financial disclosures for New Molecules (bioenergy, hydrogen, CCUS), to track progress against the company’s 33% capex allocation target for Low-carbon energies (Integrated Power + New Molecules) between FY24-28.
TotalEnergies has guided towards ~$5bn investment in Low-carbon energies for FY23, of which $1bn in New Molecules. Progress against this ambition cannot be verified with current disclosures.
Eni’s peer leading emissions targets may be 1.5C aligned, but there is a noticeable disconnect in its strategy.
Transition may be at risk as Eni lags peers in low-carbon capex ambitions and, next to TotalEnergies, has one of the most aggressive oil and gas growth strategies to FY30 (16%).
What do we want to see from Eni in FY24?
-
Eni has the most ambitious absolute targets compared to peers, aiming for a -35% reduction in net scope 1, 2, & 3 emissions between FY18-30.
However, its target may be at risk. With plans to increase oil and gas production by up to 16% by FY30, the company needs to quantify the impact of decarbonisation levers.
Eni has achieved a -17% reduction in net scope 1, 2 & 3 emissions between FY18-22.
The impact of key levers to achieve an additional 18% reduction are unclear.
When paired with overall production growth ambitions, we estimate its shift to a 60% gas mix will result in flat oil production on its FY18 base, and the impact of integrating 5 Mt pa of biorefining capacity is not clearly defined.
-
We want to see a clearer breakdown of Eni’s fragmented low carbon capex ambitions.
At its 2023 Capital Markets Day the company presented inconsistent figures for its ‘Green value chain’ (Plenitude + Sustainable Mobility).
What are the sources of these differences?
€7.4 bn for FY23-26 allocated to the Green Value Chain (20% of €37bn group capex),
€6.5 bn for FY23-26 figure to the Green value chain
25% investment in ‘low carbon businesses’ for FY23-26
30% "Green'' capital allocation by FY26.
-
Eni's performance in low carbon investment trails peers, and does not provide individual capex figures for Sustainable Mobility.
We want to see regular capex disclosures and guidance for Eni’s Green value chain (Plenitude + Sustainable Mobility), to track progress against its €6.5-7.5bn cumulative FY23-26 target.
As of 3Q, Eni has invested €383m YTD into Plenitude and has not provided individual capex figures for Sustainable Mobility.
This accounts for ~5% of the company’s cumulative FY23-26 Green value chain capex target.
