My Oxford colleague Professor Colin Mayer and I have written before about the campaign Engine No. 1, a new and small hedge fund, is waging against the oil and gas giant ExxonMobil. The purpose of their campaign is to place four directors on the board who can help the company create a business strategy that is both financially and environmentally sustainable. It is absolutely essential that all four be elected.

By way of a little context, ExxonMobil has dramatically underperformed its peers over the last 10 years (-57.2 percent in total return pre-COVID). Since 2010 its credit rating has been downgraded twice by S&P, which has put it on negative watch. Contributing to this downgrade is that its net debt has ballooned from $7 billion in 2010 to $63 billion in 2020. This debt has been used to fund projects at a spending rate greater than any of its peers, projects that require the highest oil breakeven price of any of its peers in order for them to be profitable. It has no credible plan to protect and create value during the inevitable energy transition.

A concise summary of the reality of ExxonMobil’s corporate strategy is, “As long as there’s oil and gas out there, we’re gonna drill for it. No matter the cost and how much money we lose in doing so.” An equally concise summary of their (roll up, roll up) Magical Mystery Tour strategy is, “Hey, not to worry. Thanks to our amazing efforts in carbon capture and storage, with a little bit of help from our algae friends, all will be well!”

Cover of Engine No. 1 investor Presentation | ENGINE NO. 1

These are admittedly concise summaries, so let me dig into each. I’ll start with the reality of what ExxonMobil has done and plans to do, taken from a brilliant 81-page analysis by Engine No. 1, “Reenergize ExxonMobil // Investor Presentation.” I will then take you on the company’s Mystery Tour (which is hoping to take you away) in its response to Engine No. 1: “Growing Shareholder Value in a Lower-Carbon Future,” an SEC filing, no less.

Engine No. 1’s analysis addresses six issues, provides some very constructive suggestions for how ExxonMobil can play an important role in creating a low-carbon future, and provides long-term demand projections which challenge many of the company’s basic assumptions. The document is a nice combination of careful empirical analysis, expert commentary, and points out contradictions and flaws in the company’s statements.

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