Exxon's Conservative Algae Gamble


Exxon’s (XOM) announcement of a $600 million investment in algae seems like a stunner to many.

The oil giant is traditionally sceptical of all alternative energy investments. Plunking this much cash, $300 million today, $300 down the road, seems like a change of pace.

Not so, says the FT’s Lex column:

But Exxon’s investment is hardly an about-face. Algae could pay big dividends down the road, which is why many peers are doing the same. Biofuel gases and liquids are closer to the core competency of oil and gas companies than shovel-ready wind farms or solar arrays.

BP, the third largest US wind generator, will still invest $5bn over seven years into alternatives, with more focus on advanced biofuels. Shell spent $1.7bn over five years to reduce its carbon footprint. Chevron invested $3.2bn into renewables since 2002 and is the world’s largest geothermal energy provider. By contrast, Exxon’s $1.5bn in spending over the last two years was focused on energy saving. That provided few photo-ops for its annual report.

This measured approach is consistent with a capital expenditure philosophy that has served shareholders well. Relative to smaller peers, for example, it spent far less on capital investments during the oil bubble – some 40 per cent of earnings over the past three years versus between 84 and 99 per cent for BP, Shell and Chevron. When prices collapsed earlier this year, it was the only supermajor to announce a big spending increase.

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