Op-ed: A $100 billion Big Oil divestiture plan is coming


The Johan Sverdrup oil field in the North Sea, operated by Equinor, is the third-largest oil field on the Norwegian continental shelf, with 2.7 billion barrels of oil equivalent. Equinor is planning to cut the carbon-intensity of energy products it sells by at least 50% as part of the energy transition related to climate change.


Energy transition has climbed towards the top of the agenda in the boardrooms of the world’s largest oil and gas companies. With electrification and renewable energy on the rise, Big Oil is striving to adapt to a transformation that could eventually render their business obsolete if they don’t latch on to the opportunities it brings. The result could be a massive sell-off of assets as the biggest petroleum players concentrate their oil and gas production to the countries where oil and gas is cheapest and easiest to produce.

The transition to renewable energy poses a threat to oil and gas production in the longer term as solar and wind power is expanding on the energy supply side, while lower-cost electric vehicles and better battery technology are driving big changes on the global oil demand side. Big oil companies have strong skills within energy and own assets globally that they can use to remain competitive as the transition proceeds. Some oil players may also choose to just stick with oil and gas only, but then they clearly need to be among the best in this game.

Regardless of strategy, the big oil companies need to scale down their global presence in oil and gas by focusing on countries with growth potential where oil and gas production can deliver significant cash flow and profit at the lowest possible cost and carbon footprint.

Where $100 billion is up for grabs globally

Our analysis of the geographic spread and need for increased focus for the large listed companies, also referred to as “Majors+” — U.S.-based ExxonMobil, Chevron and ConocoPhillips, and European players BP, Shell, Total, Eni and Equinor — concludes that these eight companies together may want to sell asset worth more than $100 billion to concentrate on their most promising country holdings. 

The oil majors have a long history of going wherever there is money to be made on oil and gas, and have established presence in almost every corner of the world. However, competition has stiffened in many countries as national oil companies and governments have taken more control of national resources and the number of small and medium-sized companies has increased. We see this for example in Indonesia and Malaysia, with state-owned companies Pertamina and Petronas, respectively, or in Norway and the United Kingdom, where independents have increased their role significantly.

This trend has been going on for many years, but now the energy transition is putting even more pressure on the majors as they see that renewables will also require a growing part of future investment budgets. Equinor expects 15-20% of its investments to be directed towards new energy solutions by 2030. BP total capital expenditures in 2020 are expected to be around $12 billion, with the majority spent on upstream oil and gas targets, but it plans to increase its investments in low carbon projects to around $3-4 billion a year by 2025 and $5 billion a year by 2030.

They are well aware of the need to focus their portfolios to improve cash flow, efficiency and competitiveness as the energy transition accelerates — but the steps they have taken so far may be too small or too slow.

The wide geographical presence of the Majors+ means that they are also spreading their technical and management resources out over a large number of countries. We have looked at the size of the cash flow and growth potential in each country per company, and combined this with how the country growth potential ranks globally. Based on this we see that the biggest eight publicly listed oil and gas companies may seek to exit 203 country positions, shedding all the assets held in a country.

All the companies would keep a presence in the U.S., which has by far the largest growth potential due to the shale revolution. Canada would also see many companies stay for similar reasons, but most would exit the carbon-intensive oil sand production. On the other end of the scale, we expect quite a few countries where only one oil major would be likely to stay. For example: Argentina (BP), Ghana (Eni) and Guyana (ExxonMobil). In some of these countries it could be tempting for others to stay or increase their presence as the competition may be more limited, such as in Guyana, where ExxonMobil has established a very strong position.

The top eight publicly listed oil and gas companies in the world may shed as much as $100 billion in assets around the world, according to a new analysis from Rystad Energy, but that does not mean they are walking away from fossil fuels in a hurry.

Rystad Energy

In recent months we have seen that the majors already are putting larger portfolios up for sale. ExxonMobil has exited Norway and is planning several country exits including the U.K., Romania and Indonesia, while Royal Dutch Shell tried to exit a key LNG asset in Indonesia in 2019. This shows that they are well aware of the need to focus their portfolios to improve cash flow, efficiency and competitiveness as the energy transition accelerates — but the steps they have taken so far may be too small or too slow.

Exiting countries would free up cash that the majors could use to invest in renewables, if that is their key growth strategy, or to pay dividends to their shareholders, even in challenging Covid-19 times. If they don’t want to go down the renewable route, the capital could be used to strengthen prioritized country positions by buying assets from their peers or swapping assets with other players.  

U.S.-based Big Oil is behind

A key reason why some companies are less aggressive on investing in renewables is the strategic belief that there is a need for oil and gas for a long time, and as long as they are among the best in oil and gas related to profitability and emissions, they will do well. Another reason could be that with all the changes going on within the renewable business, they may choose to be a follower rather than an early mover, who do not always end up as the winners.

We expect many of these majors to sell more of the assets with high-emission intensity to meet long-term targets for reducing emissions and help finance more investments in renewables. This gives a double effect if emissions are measured per energy unit being produced. This strategy is already underway for European majors such as Total, Shell and Equinor, which have committed to reduce the carbon intensity from the energy products they sell by 50% to 60%. Eni aims to cut absolute emissions by 80% by 2050 and BP aims to be net zero on an absolute basis across the carbon in its upstream oil and gas production by 2050.

Compared with their Europe-based peers, the U.S. majors ExxonMobil, Chevron and ConocoPhillips are communicating lower ambitions on carbon emissions.

For these companies, the outcome of the upcoming U.S. presidential election may have a significant impact on their strategy, as we expect the policies of a Democratic administration may seek to reduce greenhouse gas emissions from petroleum production and other sources more rapidly than those of a continued Republican administration. However, it is not necessarily straightforward for a new administration to make many changes too quickly in energy politics on the climate side, as they also may need to consider effects on economics and energy security.

The challenge and opportunity for the Big Oil going forward will be to maneuver with energy transition speeding up, with a big push for the renewables and reducing emissions, but still also a large demand for oil and gas, all in a context of changes in the global power balance and effects of the ongoing Covid-19 epidemic.     

By Tore Guldbrandsøy, senior vice president, and Ilka Haarmann, analyst, at Rystad Energy

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