Perhaps it was the sight of Peabody Energy collapsing into bankruptcy, or perhaps someone had told the Rockefeller family of the terrible fate of the Nuffield Foundation, but there is something particularly poignant at their decision to sell their last shares in Exxon Mobil, the business that their forebear built.
Nearly all Nuffield’s eggs were in the basket marked British Leyland, and when it became a basket case, they broke. There are plenty of others who would like to see Exxon go the same way as BL, and who point to Peabody as a terrible harbinger. Lucky, then, that the Rockefeller family trustees can claim a convenient conflation of financial sense and ethical behaviour: “There is no sane rationale for companies to continue to explore for new sources of hydrocarbons.”
The experts at Bond Vigilantes tend to agree. A cheerful post entitled “The end is nigh” warns about the credit ratings of the three-quarters of the world’s non-financial high yield debt that is issued by energy companies. The Vigilantes fear that some of the assets backing these bonds will be “stranded” between rising restrictions and falling hydrocarbon prices, to the point where it will never be worth exploiting them.
Well, so far, so fashionable. Big oil cannot expect to be loved, but forecasts of the end of the oil age have been as wrong as they have been frequent. It is barely two years since Goldman Sachs was forecasting $200 oil, and it is only a decade since the price was last under $40. The big companies have learned to survive under feast and famine. BP has survived much worse, with the Macondo disaster demonstrating that there is a deal of ruin in an oil company. Oil powers the world economy, and will continue to do so for decades to come, whatever the green dreamers believe.
The assault on the oil companies has parallels with that on those other pariahs, the tobacco companies. They have grown used to ever-increasing regulation and tax rises, yet in the last decade, tobacco shares have more than doubled (the FTSE100 is almost unchanged). Unlike their customers, rumours of their demise are much exaggerated. Rather like the oil companies, in fact.
Maths lessons at the Treasury
Mervyn King, in his post-Governorship ruminations, made much of the idea of “radical uncertainty”, a somewhat more sophisticated version of “forecasting is difficult, especially for the future”. Experience at the Bank of England had taught him, often rather brutally, that stuff happens. Surprises in economics are seldom pleasant.
We should be grateful that nobody at the Treasury seems to have grasped this. Had they done so, we would not have had the entertainment of the Equation of the Week, the arithmetic gobbledegook behind George Osborne’s assertion of economic misery in 2030 if we leave the European Union. Produced by a Treasury which has proved so poor at forecasting that we need four Budgets a year, and brilliantly deconstructed by Chris Giles, the equation asserts that you trade more with countries that are nearer, with bigger populations and who speak the same language. Of course. Has anyone been to Japan?
Pity the (relatively) poor chairman
The season for revolting shareholders is in full swing. After Bob Dudley came Mark Cutifani. Next month it’s Mark Wilson. They are CEOs of BP, Anglo American and Aviva respectively. It is understandable that any investor unlucky enough to hold all three of these duds wants to vote down egregious pay packets, and to blame the remuneration committee for awarding them in the first place.
The unfortunates who populate these committees must struggle each year to find justifications for the pay awards regardless of performance, which is why the dozen or so pages of the annual report contain explanations of metrics with all the clarity of, say, your mobile phone tariff. However, the buck should really stop with the chairmen, all done for a (relative) pittance. Lest they feel they are not getting the recognition they deserve in this debate, here are Sir John Parker at Anglo (£724,000) Sir Adrian Montague at Aviva (£481,000 for part of 2015) and that Macavity of the oil industry, BP’s Carl-Henric Svanberg (£823,000).
This is my FT column from Saturday