The world’s seven largest oil companies could gamble away billions of dollars of investor’s money over the next decade on expensive, risky and high-carbon oil projects, according to the latest research from UK-based think-tank the Carbon Tracker Initiative.
With known, lower cost, conventional oil sources alone threatening to push the world over the internationally agreed danger-threshold of 2C of warming, there is no room for riskier, unconventional projects.
Yet, oil companies are considering investing $357 billion over the next decade to develop new production in costly and technically challenging operations, including oil sands in Alberta, Canada, deep water drilling in the Gulf of Mexico and Arctic exploration.
These projects depend on a high future oil price to get a return on the capital investment.
Meanwhile, political action to halt dangerous climate change is expected to cut demand for oil, pushing the price down.
Such projects will never see a return in a carbon constrained world, leaving companies and investors exposed to potentially stranded assets.
Andrew Grant, CTI Analyst said:
This analysis demonstrates the worsening cost environment in the oil industry, and the extent to which producers are chasing volume over value at the expense of returns. Investors will ask whether it is prudent for oil companies to bet on ever higher oil prices when they could be returning cash to shareholders.
Today’s report – a follow up to CTI’s cost curve analysis earlier this year – ranks the largest oil firms according to their exposure and reveals the 20 highest risk projects worldwide, which it warns could result in $91 billion in wasted investor capital.
James Leaton, CTI’s research Director said:
Investors are concerned about the levels of capital being sunk into future fields by the oil sector, but are not getting answers on the economics of the projects from the companies. CTI has responded to demand for detail to enable shareholders to challenge where money is spent.
BP and Total have particularly high exposure to deepwater and ultra-deepwater drilling, according to CTI, while ConocoPhillips is unusually exposed to risky Arctic projects and – along with Shell – high carbon emitting oil sands.