Energy Transition Trackers
Oil & Gas Leaders and Laggards in the Low-Carbon Transition
Track Transition Strategies versus Financial Performance
The Idea
The energy transition is a mega-trend that is transforming the global economy, particularly the energy industry. For investors, one critical question is whether markets are valuing oil and gas producers based on their transition strategies.
At FFI Solutions, we believe companies taking proactive steps to realign their businesses for the low-carbon future will enjoy a strategic advantage and superior long-term financial performance compared to those slower to adapt.
To help investors track the relationship between transition activities and financial performance, we created “Transition Trackers” – theoretical model portfolios that distinguish the “Leaders” pursuing more ambitious transition plans from the “Laggards” relying more on traditional hydrocarbon extraction strategies. Our proprietary metrics assess areas like climate commitments, emissions targets, low-carbon investments and more.
The Transition Trackers
Integrated Oil & Gas
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Q3 2024 Overview
The Integrated Leaders, including BP, Shell, and Total, have set relatively ambitious emissions targets and invested more in renewable energy and clean solutions compared to the Integrated Laggards, including Suncor, Imperial Oil, and Cenovus. The Leaders portfolio underperformed the Laggards, returning 7.5% vs. 8.2% (annualized) since January 2022. This suggests that the market may have rewarded Laggards for prioritizing traditional hydrocarbon businesses over Leaders’ long-term low-carbon investments.
Exploration & Production
No Data Found
Q3 2024 Overview
E&P Leaders outperformed E&P Laggards by 16.1% cumulatively since January 2022. This outperformance likely stems from the Leaders having a higher proportion of their production tilted toward natural gas rather than oil. These companies, including many U.S. independent producers, benefited from better natural gas prices and the U.S. becoming the world’s largest LNG exporter. This performance aligns with the view that natural gas can act as a “bridge fuel” in the energy transition, with a corresponding lower risk of asset stranding compared to oil reserves.
Read our full analysis of the Energy Transition Intelligence Trackers:
The Energy Transition: A Mega-Trend
The shift towards a low-carbon economy isn’t just a trend; it’s a comprehensive transformation of our global energy and transportation systems. Driven initially by the urgent need to mitigate climate change, the pace of the energy transition is accelerating due to technological innovations and policy forces that increasingly favor low and zero carbon solutions over the fossil fuel-based incumbents. This transition is reshaping industries and redefining the playing field for companies across sectors.
At the forefront, the oil and gas sector faces unique challenges and opportunities – to align its strategies and investments towards a sustainable future. But what does this mean for their financial performance, and for your portfolio returns?
At FFI Solutions, we believe that those oil and gas companies with more ambitious plans and demonstrated actions to position their businesses for the energy transition will experience better relative long-term financial performance compared to their sector peers. The Transition Trackers monitor this relationship between transition actions and financial performance.
Methodology
Since 2022, we have been tracking the Leaders and Laggards for integrated and E&P oil and gas companies. The Trackers will be updated quarterly, with the objective of monitoring the relative financial performance of companies based on how their businesses are aligning with the low-carbon economy.
Our starting universe for creating the Transition Trackers is The Carbon Underground Oil & Gas 100 – the top investable companies globally ranked on the emissions embedded in the oil and gas reserves that they own. From this list, we remove companies headquartered in countries lacking a sufficient level of shareholder rights, capital controls, or market access, such as China (including H-shares), India, Russia, Pakistan, Saudi Arabia, South Korea, and Thailand.
We then separate the remaining companies into two sub-categories: (1) Integrated and (2) Exploration & Production. Integrated companies, with their expansive balance sheets and greater ability to make diverse investments in climate solutions, are contrasted against the focused operations of Exploration & Production firms. Each sub-category of companies has distinct challenges and opportunities in contributing to climate solutions, from direct investments in clean energy to innovative emissions reduction strategies.
Why Leaders & Laggards?
Importance of Distinction: The journey towards a low-carbon economy is and will continue to be uneven. We do not believe that the oil & gas industry, taken as a whole, is planning for the shift away from fossil fuels necessary for society to avoid the worst impacts of climate change. That said, individual companies within the oil & gas industry can be assessed relative to one another as first-movers and stragglers. By categorizing companies as Leaders or Laggards, we spotlight those forging ahead with meaningful actions to transition their businesses and those trailing behind. This differentiation not only highlights progress but also signals future financial resilience.
Scoring and Ranking: Using our proprietary Transition Intelligence data, which comprises 14 key metrics covering climate commitments, emissions, operations, clean investments, and assets, we score and rank the remaining companies. Companies that score in the top third of their respective sub-category are identified as “Leaders,” while those in the bottom third are labeled as “Laggards.”
Download Our Whitepaper
Energy in Transition: A Framework for Evaluating Strategies and Actions of Oil & Gas Companies
The Value of Transition Intelligence
Data-Driven Insights: Leveraging over 25,000 data points, 50 data fields and 14 key metrics spanning climate commitments to clean investments, our Transition Intelligence platform offers a unique view of the transition plans and actions of the 100 largest oil and gas companies.
Strategic Advantage: Unlike other third-party rankings or benchmarks, the platform enables investors to make informed decisions that reflect their unique view on the nature and pace of the energy transition, and what constitutes the “right” transition strategy.
For investors and asset managers alike, these insights aren’t just data — they’re a roadmap to navigating and capitalizing on the energy transition.
Get In Touch
Curious about how these trends could influence your strategies? Interested in a demo of the Transition Intelligence platform? Want to explore the detailed performance of Leaders and Laggards?
Contact Us: Fill out the form or reach out directly to start the conversation. Let’s explore how you can leverage transition insights for strategic advantage.