Oil price spikes, takeovers, and corporate scandals – 3 oil majors in focus

These days the oil & gas industry is never far from the front page of the business pages. Corporate scandals, the energy transition and of course volatile oil prices are all making the news.

Despite the push for net zero, demand for fossil fuels is unlikely to have peaked just yet, meaning there should still be a market for these products.

Prices are being pushed down by investor concerns about growth in the global economy – and pushed upwards by tightness of supply and worries there could be further repercussions in the Middle East. So, they’re incredibly reactive to each piece of news.

But what does that mean for some of the bigger names in the oil & gas sector and how are they faring?

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BP

BP’s been in the headlines for the wrong reasons recently. It emerged that CEO Bernard Looney would be stepping down with immediate effect after he admitted to misleading the board over disclosures relating to personal relationships with colleagues.

The group’s Chief Financial Officer is going to be taking the helm on an interim basis while the search for a permanent replacement is underway.

An unexpected change of leadership is never ideal. It essentially increases uncertainty and leaves questions unanswered, especially around strategy. Looney had also made big strides in driving the group's green energy plans forward.

So, until a successor emerges, it will be difficult to call what direction BP will take at this pivotal time. Any prolonged uncertainty is likely to weigh on investor sentiment.

However, so far, the market’s reaction to this change has been fairly muted. It seems investors are more concerned about important broader issues, including the oil price and long-term green strategies.

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Shell

The other oil giant in the FTSE 100, Shell, has seen a revival in investor sentiment as the oil price has strengthened.

This followed a more challenging start to the year where lower prices dented financial performance. At the same time, in windows when we’ve seen a return of more normal prices, there was a downturn in its gas and energy trading activities.

Shell is a leading supplier of Liquified Natural Gas (LNG) and we think the outlook for this part of Shell's business remains positive. The group’s planning to grow sales volumes in this category by between 20-30% by 2030.

Another thing to keep in mind where Shell is concerned is that strong financials enable it to self-fund significant organic investment. But with a big chunk of cash flows ringfenced for shareholder returns, there are some concerns as to how long this can continue.

We've already seen this year's spending guidance trimmed in the face of challenging trading conditions. To reduce its reliance on oil and gas based revenues, investment levels will need to stay high for the foreseeable future.

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ExxonMobil

ExxonMobil is another very recognisable oil and gas major. In fact it’s the largest independent oil and gas group in the world.

It’s in the news at the moment because it’s in advanced talks to buy one of America’s leading fracking companies called Pioneer Natural Resources, with the deal worth around $60bn.

Exxon made profit of just under $56bn last year, so it has some firepower to throw at big acquisitions like this.

But it’s also been caught up in some controversy.

Central to this deal is the group’s shale oil and gas business, and the boss of this unit has been arrested because of sexual assault allegations.

This news has more than wiped out recent gains on the group’s valuation and raises some important governance questions – something investors will need to keep a close eye on.

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Counting the cost of corporate scandals – what are they and how to avoid them

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Investments rise and fall in value so investors could make a loss.

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