Big Oil Isn't Going Anywhere, So Ignore It at Your Own Peril

I am writing this column somewhere over the Atlantic Ocean as I return from Brazil. What is amazing about this big blue marble on which we live is how much of it is uninhabited, which is amplified by the fact that nearly three-fourths of it is covered by water. There is gold under those seas, and Exxon Mobil's XOM announcement this week that it had made yet another productive discovery offshore Guyana -- the Longtail-3 prospect -- -shows that those seas are no barrier to progress.

That's right, progress. Exxon Mobil is moving forward in Guyana with partners Hess (HES) and China's state-run CNOOC. (XOM) management has made the Guyana/Suriname offshore block a priority for its oil business, just as Papua New Guinea is for its natural gas business.

As you reach for your World Atlas, let me assure you that years of following Big Oil -- and owning XOM for myself and my clients' accounts -- have imprinted the necessity of riding the geopolitical wave as one invests in this sector. Governments will come and go and state-owned oil companies -- NOCs -- will always have an advantage in local production of hydrocarbons.

We don't have an NOC in the U.S., but we have a force that is much less powerful and only amplified by the relentlessly misleading force that is the U.S. financial media. Only those dingbats could herald an outsider -- Engine No.1, which reportedly owns a whopping 0.02% of XOM's shares outstanding -- taking three seats of a 12-seat board as a "seismic shift." Hogwash.

Even if fellow self-styled activist Jeff Ubben is included, the "woke" contingent on XOM's board would be four out of 12. Thus the non-woke, management-friendly contingent on XOM's board still controls two-thirds of the votes. It would seem that the pro-management faction would win any boardroom showdown, wouldn't it?

But, in the spirit of reading the tea leaves, Exxon Mobil management wisely has chosen to shift its focus outside the U.S. and away from woke activists and their ridiculously unscientific, apocalyptic predictions. Exxon Mobil is still going to dominate Texas, but that is probably it for North America. That's just fine with me as a shareholder.

I see the world differently than most, but unlike those who pontificate about faux-Green agendas on left-wing-friendly cable networks, I actually see the world. Remember these are the same people who, up until the publication of an article in The Wall Street Journal two weeks ago, were convinced that a pandemic that has now infected 175 million people and killed 3.75 million people stemmed from a single bat bite. Agree to disagree, I suppose. That is why we have financial markets.

Energy poverty is a very real thing. Estimates vary, but I believe close to one billion people on Earth are impacted by energy poverty. These are folks who are living in conditions that we in the West would consider substandard, and, for better or worse, hydrocarbons are currently the only way out of this energy poverty trap.

Those folks don't live in Connecticut and they don't drive Teslas, but they do exist. We need to stop attempting to force our world views on them and investors need to stop ignoring them.

I saw my first electric vehicle "in the wild" in Brazil -- an Audi e-tron; Tesla (TSLA) has no official distribution there, at least a couple weeks ago. I have been fascinated with BEVs (battery electric vehicles) ever since I was one of a small cohort of analysts chosen to test drive the GM EV1 in the late 1990s.

I am no Luddite, but I am also no lemming. With oil prices at $70 a barrel -- Brent crude is holding that mark and West Texas Intermediate (WTI) is flirting with it -- the world's oil majors are entering into a period of extremely positive cash flow. Whether they choose to use that cash flow to drill holes under the ocean floor to find more oil or drill those holes in hare-brained carbon capture schemes is not my greatest concern.

Companies such as Exxon Mobil and Chevron (CVX) and their international brethren are going to continue to use those excess cash flows to reward shareholders via dividends. While this may seem outdated -- XOM's refusal to aggressively buy back its stock, which is yielding nearly 3x the current yield of its bonds, drives me batty -- real returns should never be discounted. 

It's a great big world out there. If you are ignoring that in your portfolio, your myopia will be punished. Inflation hurts Big Tech just as much as it helps Big Oil. Ignore the noise and keep adding to your energy stock holdings. 

At the time of publication, Jim Collins' firm was long XOM and short TSLA.