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Climate activists win big against Exxon

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On Wednesday, Exxon Mobil lost at least 2 board seats to an activist hedge fund in a historic climate vote. Myles Udland, Brian Sozzi, and Julie Hyman discuss what’s next for the big oil giant as well as the future of the oil and gas industries.

Video Transcript

MYLES UDLAND: All right, let's turn our attention now to some big news yesterday in the Big Oil space. We had a couple of different initiatives crossing the tape for a couple of different companies. The primary among them is ExxonMobil seeing two members, or two representatives nominated to its board by an activist investor that, Julie, owns just about 1/10 of 1% of Exxon shares getting a win here.

And we chatted about this a little bit in the morning. It's really that major institutions supported the plans set forward, or the nominees set forward by this small activist. But kind of give us the lay of the land here and how, I guess, as someone who is passionate about the Big Oil space, how this seems to you like the beginning of a trend for these companies that are facing a lot more pressure from shareholders to really green up their operations.

JULIE HYMAN: Yeah, well, there were three things that happened yesterday, right? There was the ExxonMobil news, where two of those directors who were nominated by Engine No. 1, which is the tiny activist fund. I believe their stake is actually 0.02%, if I'm not mistaken. But they were backed up by the likes of BlackRock and some of the big pension funds also. So two of their four directors were indeed successfully nominated to the board. So that's thing one. And they had been pushing-- that activist fund has been pushing for Exxon to diversify its business.

Number two, at Chevron you have a similar activist push, although on that part it's by a non-profit. And then three, you had a court in Europe telling Royal Dutch Shell that it needs to be more aggressive cutting its emissions targets by 2050-- in fact, twice as aggressive or cutting them twice as much as the company had been planning.

So you look at the ensemble of that, you know, and I can't help but think of parallels within something like the cigarette business, right? You know, are we seeing a secular decline in oil and gas companies as a result of the push for climate change, just as we saw a secular decline in the consumption of cigarettes because of flags about the health risks of that? Obviously it's not a direct parallel, but I just think it's fascinating when you see an industry that has been so dominant globally, and now it is seeing a hit because of these various things.

Now, I think it's a little bit wrong to say that Engine No. 1 is just a climate activist, right? They are also concerned about ExxonMobil's business. They're framing it that way, that it is bad business for ExxonMobil to have made the choices that it's made. And indeed, the company had its first ever annual loss last year. And if you look at the five-year chart of the stock, it's been down. So it makes sense from that perspective as well. But I do think it is a very interesting trend, and it's definitely not done.

BRIAN SOZZI: And Julie, we've got a statement from Exxon CEO Darren Woods. I'll read a quick excerpt here. He said, quote, "With almost 3 million shareholders, it's not surprising we heard a wide range of views. And many supported the work that we're doing to improve earnings and cash flow capacity, as well as the work to advance the company to a lower carbon future."

And to me here, the other intriguing story is how much longer does Darren Woods stay on as the CEO of ExxonMobil? This was a crushing blow from everything that I've read. And talked to a few people, this is a crushing blow internally to the company. Of course, Exxon, this is not normally what would happen at a company this big but this much of a story name.

But the winds of change are blowing, Myles and Julie. And it would be conceivable, based off of this vote, based on the many years of bad investments made by Darren Woods-- he could be shown the door within the next 18 to 36 months.

MYLES UDLAND: Yeah, and I think, you know, Julie, the comparison to the cigarette business is an interesting one, because no one-- I mean, we've had executives from Philip Morris come on our program and say they don't want people to pick up smoking. And I think that that position of, maybe you're doing some e-cigarettes stuff here or there, but you're essentially running down the company, paying out a dividend, buying back stock, and watching your core customer-- who is, by the way, addicted to your product, which does cause cancer-- continues to dwindle over time.

I don't think that any business wants to end up in that kind of conundrum as a long-term option for its life as a going concern. But it is unclear indeed where the oil and gas majors are going to go, unless they-- I mean, such a cliched thing that actually is never true-- but become part of the solution, whatever that's going to look like. But it's clear that-- it's clear that the current course of business is just not going to be sustainable for them.

And leaving out, Sozzi, as you kind of alluded to, the investments made haven't exactly worked out for a lot of these majors in particular. You look at sort of what's happened in the shale patch. I mean, I think that leaves a lot to be desired as well. So certainly, you know, a story that will probably consume the rest of our lives and the lives of our children. Because you know, how we power the things that we do is changing, but of course, still in real-time happens the way that it sort of always--