Market Response to Oil and Gas Stocks Proving Energy Industry Can Still be ESG Friendly

Market Response to Oil and Gas Stocks Proving Energy Industry Can Still be ESG Friendly

USA News Group – In 2021, shares of more eco-friendly companies known to appease ESG investors were outperformed by oil and gas stocks over the course of the year.

Despite this apparent divergence, there’s been a movement towards making O&G stocks more ESG friendly, such as the push to reincorporate Civitas Resources, Inc. (NYSE:CIVI) into ESG funds. Less phased by ESG peer pressure, billionaire investor Warren Buffett and his Berkshire Hathaway Inc. (NYSE:BRK-A, BRK-B) stacked up an investment worth ~$7.7 billion into Occidental Petroleum Corporation (NYSE:OXY) in March 2022, with speculation he could pay the remaining $50 billion to acquire the whole thing. Buffett’s latest investment put Occidental in with Chevron Corporation (NYSE:CVX) as the only two O&G stocks in Berkshire’s top 10 largest common stock holdings. Meanwhile, other ESG-friendly O&G deals are taking place, including the takeover of Petroteq Energy, Inc. (OTC:PQEFF) by Viston United Swiss AG.

In the case of Petroteq Energy, Inc. (OTC:PQEFF), cleaner technologies for sustainable oil production drew significant attention from ESG-focused equity firm Viston United Swiss AG, which was created to invest in renewable energies and clean technologies, as well as in the environmental protection industry.

Petroteq’s development of proprietary oil extraction and remediation technologies made it stand out as part of an overall ESG strategy for Viston United Swiss AG.

Their technology’s ability to enable a company to produce oil without water, waste tailings ponds and emissions, led to Viston’s premium price valuation of Petroteq stock, at a price point of approximately 279% over the closing price of the Common Shares on the TSX Venture Exchange on August 6, 2021, and a 1,032% premium to the 52-week volume weighted average trading price on the TSX-V prior to the offer originally made in April 2021.

"We are particularly pleased with the recognition this shows of our technology which we have taken from inception to commercial viability as a one of its kind in oil sands eco-friendly, green extraction,” said former Petroteq Chairman and CEO, Dr. Gerald Bailey, who retired in January. “We had always forecast a great future. However, we respect the value of this offer to shareholders and if it can be achieved it will reward our many dedicated supporters."

Last September, Petroteq proved it could produce from oil sands ore using its Clean Oil Recovery Technology (CORT) process.

After the release of the pilot program’s test results, Vladimir Podlipskiy, PhD, Interim CEO and Director of Petroteq, commented: “Confirmation that heavy oil extracted from Utah oil sands using our CORT process is suitable for production of MSAR® and bioMSAR™ fuels could allow for the production of fuel and biofuel with significant environmental benefits, while creating a higher value product stream for Petroteq's future commercial production."

In addition to sustainable oil production, Petroteq’s technology cleans oil sands of all hydrocarbons, creating a purified sand as part of an overall ESG strategy.

The Viston offer has been favorably across the Petroteq team. Its Board Members have shared their unanimous intention to tender their shares through the offer. Now the company’s Founder, Former Chairman and CEO Alex Blyumkin has announced his support for the takeover bid.

“After thorough consideration of all aspects of the Viston Offer, the advice provided by Haywood and consulting with its other advisors, the Board has unanimously determined to recommend that Shareholders accept the Viston Offer and tender their Common Shares,” said the Board in their official statement.

The offer itself is valued at a considerable premium over the market price, with a 100% all-cash consideration of ‎C$0.74 ‎per common share.

Meanwhile, through its US shares on the OTC under the PQEFF symbol, shares of Petroteq are trading around US$0.375 (C$0.474) on March 30, 2022. At that price point, the C$0.74 still represents a potential 56% premium over the more current trading price.

At a time when the US government is urging increased oil and gas production to offset some of the deficit created by sanctioning Russia for the conflict in Ukraine, talk is ramping up on how to increase domestic production again.

According to Ben Dell, co-founder and Managing Partner of the private equity firm Kimmeridge Energy Management, it’s possible to produce traditional energy sources with reduced carbon emissions.

Kimmeridge is currently the largest shareholder in Civitas Resources, Inc. (NYSE:CIVI), which produces oil and natural gas in the Rocky Mountain region of Colorado, and is billed as “Colorado’s first carbon-neutral oil and gas producer.”

“My real ambition is to see oil and gas companies like Civitas added back to ESG funds,” said Dell, stating he hopes ESG funds would go on to “understand that the company is already reducing its emission footprint and has offset its footprint and is delivering a net zero product.”

After closing a large $346 million acquisition of Denver-Julesburg Basin operator Bison Oil & Gas II, Dell who was already serving as Chairman of the company, officially took over as interim CEO of Civitas.

Last year at the Berkshire Hathaway Inc. (NYSE:BRK-A, BRK-B) annual shareholder meeting, Warren Buffett shared his own unconventional views on ESG investing. When it comes to reporting for the sake of it, Buffett believes excess ESG reporting should be avoided, as he doesn’t believe these reports are always fully read before additional questions come about.

Berkshire Hathaway is comfortable with investing in both Chevron Corporation (NYSE:CVX) and

Occidental Petroleum Corporation (NYSE:OXY).

But just because Berkshire’s methods of acknowledging ESG intentions aren’t as transparent as other firms might be, that doesn’t mean its O&G interests ignore the market’s demand for ESG efforts.

For example, Occidental Petroleum Corporation (NYSE:OXY) has announced plans for 70 plants to capture carbon from the air by 2035. Construction on the first direct air capture plant that’s planned is expected to start in H2 2022, with startup scheduled for late 2024, with the cost per plant expected to cost $1 billion.

“Corporations and CEOs are realizing that for us to mitigate climate change in the world, it’s absolutely necessary that we take steps now,” said Vicki Hollub CEO of Occidental. “This is a sure opportunity and a way that we can definitively store and keep captured CO2 either underground or through products for forever, and it’s a path for others to make their path sustainable too.”

Hollub’s company is also investing $100 million this year to develop three carbon sequestration hubs by 2025. Occidental has said it’s on track to secure more than 100,000 net acres this year for these sequestration hubs, including for multiple sequestration sites on the Gulf Coast.

Another Berkshire interest, Chevron Corporation (NYSE:CVX), earlier this year made its biggest bet so far in company history into alternative fuels, through a $3.15 billion acquisition of biodiesel maker Renewable Energy. While biodiesel and renewable diesel use similar feedstocks, renewable diesel undergoes a separate refining process to make it chemically identical to ultra-low-sulfur diesel.

"Most people see (biodiesel) as growing in the U.S. and Southeast Asia ... and view it as a blendstock to get optimum margin because it's less expensive than renewable diesel," said Mark Nelson, Executive VP of Downstream and Chemicals for Chevron, in an interview with Reuters.

Much like the PetroTeq and Viston takeover offer, Chevron’s offer for Renewable Energy came with a premium of more than 40% prior to the company’s closing price the Friday before the Monday announcement took place.

The investment fits into Chevron’s long-term plans to cut operational emissions to net zero by 2050 and in September pledged to invest $10 billion to reduce its carbon emissions through 2028, with about $3 billion earmarked for renewable fuels.

More recently, Chevron agreed to collaborate with Restore the Earth Foundation on a carbon offsets reforestation project in Louisiana, which includes planting an expected 1.7 million native bald cypress seedlings as part of the project.

“Chevron New Energies is proud to collaborate with Restore the Earth on our inaugural carbon offsets project – bringing lower carbon solutions to Chevron as well as our customers,” said Barbara Harrison, vice president of Offsets & Emerging of Chevron New Energies. “In addition to helping remove carbon, the seedling replanting is anticipated to contribute to local forest and wetland ecosystem restoration.”

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