Fossil Fuel Aberration

Asked to write a history of renewable energy, most investors would probably begin with a story of ethanol in the 1940s or solar cells in the 1950s.  That is only modern renewable power sources.  Truth be told, energy as humans know it has always been renewable.  Before the wider exploitation of coal beginning in the 1700s and other fossil fuels in the early 1800s, all energy sources were renewable.  There were water powered grain mills, wind powered water pumps, wood fires for heating and cooking, and animal power for transportation and agriculture.  In the greater scheme of things renewable energy has been the norm for tens of thousands of years and fossil fuels are a very short-term aberration with only a few hundred years.

Our current business and political leaders view solar, wind and biofuels as unwelcome intrusions on the established coal and petroleum power structure.  Likely that is because a good share of their wealth or the wealth of their political supporters derives from the sale of fossil fuels and other petrochemical products.  In 2016, out of the total $3.15 billion spent on lobbyists, $119.2 million was spent on lobbyists working for the oil and gas industry.  Interestingly, a quarter of the oil and gas lobbying effort in the U.S. is funded by just three companies:  Exxon Mobile, $11.8 million; Koch Industries, $9.8 million; and Royal Dutch Shell, $9.0 million. 

It is understandable that Royal Dutch Shell (RDS-ADR:  NYSE) has a vested interest in the fate of the oil and gas sector.  Who cares about RDS? 

Capital World Investors is by far the largest shareholder of Royal Dutch Shell, with ownership of 27.5%.  Capital is an investment management company with over $1.4 trillion under management.  According to reports filed with the SEC on Form 13-F, Capital held 525 positions at the end of September 2017.  Its largest positions are in the technology category, accounting for 25.5% of Capital’s total holdings.  However, 9.4% of its holders were in the energy category  Capital’s largest holding in the fossil fuel sector is Enbridge, Inc. (ENB:  NYSE), followed by the stake in RDS.  Capital cannot afford to see a weakening in the value of oil and gas positions.

ExxonMobile (XOM:  NYSE) is a fully integrated oil and gas developer, producer and refiner.  The company has a horse in every race.  Its investors are as keen on protecting their interests as any with a stake in the sector.  Who owns ExxonMobile?

Ownership of ExxonMobile is less concentrated than Royal Dutch Shell.  The largest institutional investor is Vanguard Group with a stake representing 7.4% of the common stock.  The top three institutional investors command only 18.5% of the company’s outstanding shares. 

That does not mean that the company has no high profile investors.  Exxon’s former chief executive officer, Rex Tillerson, sits very near the top of the mount as the U.S. Secretary of State.  The position is the most powerful of the cabinet positions and is fourth in line to succeed the president of the United States.   Six former secretaries of state have moved on to become president and at least a half dozen have been presidential candidates.  It is a handy vantage point from which to watch out for the interests of ExxonMobile. 

Tillerson has personal motivation in the form of 2.5 million shares XOM shares even as the shares are purportedly held in trust.  He also gave up some additional perks and compensation that had been promised by ExxonMobile, including cash bonuses that were to have been paid out in 2017 to 2020.  Still, valued at about $214 million, it is difficult to ignore that XOM stake  -  trust or no trust.

As a private company, Koch Industries is an entirely different animal.  The far flung manufacturing, chemicals and petroleum enterprise is the second largest privately held company in the U.S.  Among all companies in the U.S. it is the seventeenth largest.  Koch Industries has invested in a wide array of industries, with the oil and gas sector among the most significant.  At its peak in 2014, Koch-owned facilities refined as much as 5% of the oil burned in the U.S.

Two individuals, Charles Koch and David Koch, own 84% of the enterprise, which produces at least $100 billion in sales each year.  Their father Fred Koch founded the company.  The brothers have made quite a name for themselves in political circles, making no secret of their intentions to shape public policy through support of libertarian and conservative politicians.  They have also provided extensive funding for research groups and policy institutes that advocate ideas and policies favorable to their business interests.  ‘Climate denial’  -  the short name for dismissal of a myriad of scientific proof that human use of fossil fuels has caused an abrupt warming of the planet  -  has been inextricably linked to Koch Industries and Charles and David Koch themselves.

The three largest supporters of fossil fuel industry lobbyists each have some form highly concentrated ownership, influence and allegiance.  The fate of the petrochemical industry hits each of these three investors  right where it could hurt the most  -  their pocketbook.  No surprise then that the oil and gas industry and their most influential owners would like us all to forget our renewable energy legacy in favor of their products.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.