Thread by @ArjunNMurti

1 of 8/ Energy Transition public policy and ESG pressures - the best thing going for the oil & gas sector

The unfolding energy crisis is unlike any prior. Normal investor angst about poor ROCE have been turbo-charged with a “worst of all worlds” public policy and ESG backdrop.

2/ We are not devoid of low-cost oil or nat gas resources, as we were in 2003-2010. But exactly no one wants higher CAPEX. Traditional and ESG investors, climate activists, and US/Canada/EU governments all argue for limiting oil & gas CAPEX.

3/ Incredibly, important media outlets are expressing surprise in their headlines when leading banking firms express a willingness to stick with oil & gas clients. Pressure is mounting to move beyond Coal and include Oil & Gas on the “taboo for bankers” list.

4/ In a world where no one wants higher CAPEX and there are questions as to future capital availability, traditional energy companies and countries are logically prioritizing free cash flow and balance sheet repair over CAPEX.

5/ The problem is that ESG and government policies are almost exclusively focused on restraining fossil fuel supply, without any real effort to curb demand. Various fiscal stimulus and infrastructure investment programs in fact are likely to boost oil & gas demand.

6/ Why the obsession on the part of gov’t and climate policy experts on fossil fuel supply? Who knows. No matter how ill-conceived the near singular focus on supply seems, it is on-track to boost oil & gas sector ROCE.

7/ An energy crisis of choice: Boosting demand, or at least not taking steps to actually limit it, while taking active steps to limit supply is a recipe for a major energy crisis. Why would anyone besides oil & gas investors want this?

8 END/ The world indeed needs to transition to lower carbon energy sources. And likely will over the next 50-70 years. As we are transitioning, the current policy and ESG backdrop seems especially promising for Oil & Gas ROCE/FCF.