Net zero Oil Majors: four cardinal virtues?

Attaining ‘Net Zero’ can uplift an Energy Major’s valuation by c50%. Specifically, this means emitting no net CO2, either from the company’s operations (Scope 1&2 emissions) or from the use of its products (Scope 3). This 19-page report shows how a Major can best achieve ‘net zero’ by exhibiting four cardinal virtues. Decarbonization is not a threat but an opportunity.


Prudence entails shifting portfolios appropriately. Full decarbonization of the world is possible at a CO2 cost below $75/ton. Thus, technologies costing $100-1,000/ton should be avoided as they could prove to be value destructive. The largest, cost effective opportunity for Majors is trebling gas output, displacing 2.5x more CO2-intensive coal, which can save 20% of the world’s emissions (pages 2-5).

Temperance entails lowering CO2 intensity. Scope 1&2 CO2 varies 5-7x between different resources plays and by 2-3x within resource plays. Majors must strive to be among the lowest carbon competitors in every sub-sector where they operate. This CO2-efficiency correlates with cost-efficiency. It is increasingly rewarded by financial markets with c2pp lower WACCs and higher multiples (pages 6-12).  

Courage entails maintaining investment where it is justified by a technical edge. Across a commodity industry, superior returns and CO2 intensities hinge on having superior technologies. Thus, to make the world as efficient and low carbon as possible, companies with industry-leading capabilities should invest. Their growth takes share from less efficient peers, helping the transition (pages 13-16).

Justice entails offsetting all CO2. Nature-based solutions to climate change, such as reforestation and soil restoration, can generate carbon offsets, costing $10-50/ton, near the bottom of the global CO2 cost curve. These offsets can be sold alongside fuels to yield ‘decarbonized fuels’, uplifting retail margins c15-25% (pages 17-19).

Note: the ‘four cardinal virtues’ have been borrowed from Plato’s Republic. The modelling and analysis in the note is our own. Please let us know if you have any questions, comments or would like to discuss.