Thread by @ArjunNMurti

1 of 12/ Stop trying to get Blockbuster Video — i.e. Big Oil—to accelerate energy transition

Crazy-idea-of-the-week: Free Big Oil to focus on producing (still) needed oil and gas.

2/ The obsession by some ESG investors and others passionate about reducing CO2 to get Big Oil to switch CAPEX from Oil & Gas to low/zero CO2 projects is baffling. How many examples in any industry are there of companies transitioning to next gen tech or biz models?

3/ Did the failure of Blockbuster Video to recognize the Netflix threat stop streaming? Or did it actually hasten it. Thank goodness Netflix had the guts to stay independent.

4/ Was Sears Roebuck or JC Penny or Macy’s a help, hindrance, or irrelevant to e-Commerce growth? Do those brands even exist anymore? (I think Macy’s might.) Did Amazon need bricks-and-mortar Retail free cash flow to fund its e-growth?

5/ Big Oil generated poor ROCE over 2011-2020 in the business it knows best - Oil & Gas. Why would anyone remotely think they will profitably lead in new businesses they know very little about? How does an entrenched bureaucracy pivot to a start-up mindset?

6/ What should Big Oil do? (1) Produce as much low cost oil & gas as the world still demands at a full-cycle ROCE greater than 12%. (2) Grow supply at a pace that approximates demand trends. (3) Return excess cash back to shareholders.

7/ How can Big Oil contribute to fighting climate change? (1) No methane flaring, venting, or leaks starting soon. (2) Figure out an industry solution to orphan wells and other blights caused by firms that no longer exist. (3) Net zero Scope 1+2 by 2050 (or sooner).

8/ Is there any role for Big Oil in new energy? Yes, absolutely. I am bullish OXY’s CCUS strategy. EQNR may be a good offshore wind co. Renewable diesel is logical for VLO. CVX’s “incremental” transition plan seems sensible. Hydrogen might be interesting within 30 years.

9/ The idea that you solve climate change by creating a shortage of traditional oil & gas supply, I predict, will be a big fail for the world economy, the climate, and especially for the least advantaged among us. It’s f—ing insane.

10/ If EVs and other low/zero carbon technologies ultimately diminish consumer demand for oil & gas, Big Oil likely will suffer. Why does anyone care about their survival? Business failure and rebirth is a feature of capitalism. Save polar bears, not Big Oil.

11 END/ Energy transitions are L-T in nature, measured in multiple decades that are more likely to round to a century than 0. DVD-to-streaming, landline-to-mobile happened fast. Energy will be much slower. So Big Oil may not quite be ready to go the way of Blockbuster or Sears.

PS/ A long-form version of this thread can be found on my Substack, Super-spiked: arjunmurti.substack.com/p/blockbuster-…