It’s Getting Harder for Oil Companies to Make Money. Here’s Why.


The full article by Mark Schapiro was originally written for Mother Jones

ONE MORNING IN MAY, Danielle Fugere tried to convince America’s second-largest oil company to get out of the oil exploration business. Standing before a room full of Chevron shareholders in San Ramon, California, she warned that climate change and rapidly shifting oil markets were threatening to erode the corporation’s profits.

Fugere, president of the shareholder activist group As You Sow, pointed out that Chevron—the world’s largest corporate source of carbon dioxide emissions—has spent billions of dollars searching for new, often remote sources of oil that will take years to tap. How, she wondered, can the company remain profitable when it faces plummeting crude oil prices and looming restrictions on fossil fuel use? Rather than funding long-term projects that might never pay off, she argued, Chevron could return the money as dividends or steer it into less risky ventures like renewable energy. “Oil that stays in the ground is valueless,” she said.

The proposal garnered less than 4 percent of Chevron’s shareholder votes. But warnings about oil’s uncertain future are no longer just coming from climate activists. From Wall Street analysts to Middle Eastern bankers, some of Big Oil’s former cheerleaders are starting to sound the alarm, questioning whether the industry can stay on its current course and remain in the black. “They’re in a vise,” says Mark Lewis, chief energy economist at the international financial consulting firm Kepler Cheuvreux. “You have economics and technology on one side of the vise. And you have politics, the push for climate action, on the other side.”

Start with the tumbling price of oil. Finding new sources of petroleum, especially when they’re deep beneath the sea or buried in layers of shale, is extremely expensive, so energy companies need prices to stay reliably high. In 2014, Goldman Sachs cautioned investors that the largest new drilling projects needed to earn at least $90 per barrel to break even. The World Bank says one-third of current oil production and two-thirds of future reserves could be uneconomical even at $60 per barrel. In August, the price dipped below $40, the lowest in more than six years.

Read more via Mother Jones
It’s Getting Harder for Oil Companies to Make Money. Here’s Why.