HOUSTON (ICIS)--ExxonMobil must change its business strategy to align with new industry trends, including investing in more clean energy opportunities, an investment firm said in a letter to the US energy major’s board of directors.
Engine No 1 is an investment firm seeking to replace four members of ExxonMobil’s board of directors in a potential proxy fight backed by the nation’s second largest pension fund owner and holder of $300m of the company’s stock.
The firm, founded by Chris James, is backed in its efforts by the California Teachers’ Retirement System, according to a release.
Engine No 1 outlined its case in a letter sent to ExxonMobil.
The investment firm cited poor returns for ExxonMobil’s shareholders related to the broader market, where it said the company’s total shareholder return, including dividends over the past 10 years, is down by 20%, compared with 277% growth in the S&P 500.
“Its total shareholder return for the prior 3-, 5- and 10-year periods trails each of its self-selected proxy peers and the S&P 500, both before and after the Covid-19 pandemic,” Engine No 1 said in the letter.
The firm said ExxonMobil has seen diminishing returns on capital employed (ROCE) for upstream projects, which typically account for more than 75% of the company’s total capital expenditures, as it has fallen from an average of 35% from 2001-2010 to 6% from 2015-2019, “even during periods of higher oil and gas prices”, the letter said.
Engine No 1 said ExxonMobil has the highest debt level in its history and the “highest net debt to cash from operations ratio among the oil majors”.
Director candidates submitted by Engine No 1 include Gregory Goff, former CEO of Andeavor; Kaisa Hietala, former executive vice president of renewable products at Neste; Alexander Karsner, senior strategist at X, the innovation lab of Google parent Alphabet; and Anders Runevad, former CEO of Vestas Wind Systems, a wind turbine manufacturing, installation, and servicing company.
The firm said it wants the new board members because making the changes it recommends will require a board with a diversified level of insight into the evolving trends, technologies, markets and policies shaping the future of the industry.
“Yet none of ExxonMobil’s independent directors have any other energy industry experience,” the firm said in the letter. “This is not a criticism of any director, each of whom is highly accomplished and respected, including by us. It is instead an acknowledgement of the unique challenges facing ExxonMobil and the industry.”
“We are open to engaging in a constructive dialogue to discuss these individuals before the need arises to nominate them for election to the board. We believe that collectively they can help the board unlock sustainable, long-term shareholder value by addressing the fundamental issues facing the company,” the letter said.
ExxonMobil did not immediately reply to a request for comment.
ExxonMobil is a crude oil refiner and producer of petrochemicals as well as an oil and gas producer.
Thumbnail image by Richard Drew/AP/Shutterstock
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December 08, 2020 at 05:16AM
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