Sir, Lex asks: “Do the oil supermajors still make sense for conservative investors?” (“Chevron: the elemental Watson”, FT.com, August 24). Yes, but perhaps for more broad-based reasons than many may perceive.
Three material threats face any mature company. Critical damage or even failure via only one of these can lead to collapse. The first is regulatory abuse. Such is the nature of capitalism and its protocols that as the giant searchlights of both media and political scrutiny sweep the land, they generally find fault wherever they settle. See financials (abusers of ratings and leverage), automotive (emissions scandals), pharma (overpriced drugs behind patent) through to big tech (the current demon du jour — privacy and taxes) for examples. The reserve mis-booking scandals of big oil are comparatively recent. Many other industries are due their dog days again before those of oil return.
The second is social licence. Abuse the people or the state and they will eventually rise up and scandalise you. Once again, the worst of days are twice behind for oils. Arguably the greatest customer harming business monopoly the world ever saw ended when Standard Oil was broken apart over 100 years ago. The now mature children including Chevron and Exxon remain pre-eminent. The flaring of oil over native heads and dumping of pollutants into rivers and shores in countries such as Nigeria are also largely in the past. Indeed, Whitehall and UK business alike now cry out in desperation to see the Gatwick subsoil charged with high-pressure chemicals in the hope of squeezing out a drop of oil, envious of what they witness in Texas and US shales. No chance of an imminent global upset here, it seems.
The last is a failure to innovate. Industries change, but sometimes companies don’t. In perhaps as little as 20 years, petrol and diesel will no longer be the global driver’s fuel of choice. But the need for petrochemical-derived products has never been greater and remains in ascent, not decline. Many of the world’s very finest scientific and analytical brains are employed at supermajors and will thus ensure that they remain ahead. In 1963 Exxon had the forerunners of electric car and low-emission vehicles patented. They just needed the world to catch up.
The supermajors are safe investments relative to most and will continue to pay their dividends. Tell your grandmother to buy, and don’t forget the child ISA either.
Hannam & Partners,
London W1, UK