Ramp Renewables? Portfolio Perspectives.

It is often said that Oil Majors should become Energy Majors by transitioning to renewables. But what is the best balance based on portfolio theory? Our 7-page note answers this question, by constructing a mean-variance optimisation model. We find a c0-20% weighting to renewables maximises risk-adjusted returns. The best balance is 5-13%. But beyond a c35% allocation, both returns and risk-adjusted returns decline rapidly.


Pages 2-3 outline our methodology for assessing the optimal risk-adjusted returns of a Major energy company’s portfolio, including the risk, return and correlations of traditional investment options: upstream, downstream and chemicals.

Page 4 quantifies the lower returns that are likely to be achieved on renewable investment options, such as wind, solar and CCS, based on our recent modeling.

Pages 5-6 present an “efficient frontier” of portfolio allocations, balanced between traditional investment options and renewables, with different risk and return profiles.

Pages 6-7 draw conclusions about the optimal portfolios, showing how to maximise returns, minimise risk and maximise risk-adjusted returns (Sharpe ratio).

The work suggests oil companies should primarily remain oil companies, working hard to improve the efficiency and lower the CO2-intensities of their base businesses.

Decarbonise Downstream?

Refining has the highest carbon footprint in global energy. Next-generation catalysts are the best opportunity for improvement: uniquely, they could cut refineries’ CO2 by 15-30%, while also uplifting margins, which get obliterated by other decarbonisation approaches. Catalyst science is undergoing a digitally driven transformation. Hence this 25-page note outlines a new ESG opportunity around refining catalyst technologies. Industry leaders are also identified.


Pages 2-3 outline the need to decarbonise the refining industry, in order to clean up the world’s future oil production and preserve access to capital.

Pages 4-6 decompose the sources of CO2 emissions across a typical refinery, process-by-process; as a function of heat, utilities and hydrogen.

Page 7-8 outline small opportunities to improve refinery CO2 intensities, via continued process enhancements, changing crude slates and renewable energy.

Page 9 finds green hydrogen can reduce CO2 emissions by c7-15%, but economics are unfavorable, obliterating refining margins.

Pages 10-12 models the costs of post-combustion carbon capture, which could cut CO2 intensities by 25-90%, but also risks cutting margins by $2-4/bbl.

Pages 13-14 present the opportunity for better catalysts, identifying which Energy Majors have the leading refining technologies, based on patent filings.

Pages 15-17 outline the most promising, emerging catalyst technologies from 50 patents we studied. They can reduce refinery CO2 intensities by 5kg/bbl.

Pages 18-21 highlight breakthrough, digital technologies to improve the development of new catalysts, including super-computing and machine learning techniques.

Pages 23-24 screen 35 leading catalyst companies, including Super-Majors, chemicals companies and earlier-stage pure-plays.

Guyana: carbon credentials & capital costs?

Prioritising low carbon barrels will matter increasingly to investors, as they can reduce total oil industry CO2 by 25%. Hence, these barrels should attract lower WACCs, whereas fears over the energy transition are elevating hurdle rates elsewhere and denting valuations. In Guyana’s case, the upshot could add $8-15bn of NAV, with a total CO2 intensity that could be c50% below the industry average.


Pages 2-3 introduce our framework for decarbonisation of the global energy system. Within oil, this requires prioritising lower carbon over higher carbon oil barrels.

Pages 3-6 outline the economic value in Guyana, which is now at the point where it is hard to move the needle with further resource discoveries.

Pages 7-8 show how lower WACCs can be trasnformative to resource value, even more material than increasing oil prices to $100/bbl.

Pages 9-17 outline the top technologies that should minimise Guyana’s CO2 emissions per barrel, including flaring policies, refining quality, midstream proximity, proprietary gas turbine technologies from ExxonMobil’s patents and leading digital technologies around the industry.

Our conclusion is that leading companies must deepen their efforts to minimise CO2 intensities and articulate these initiatives to the market.

Investing for an energy transition

What is the best way for investors to decarbonise the global energy system? We argue this outcome is achievable by 2050. But a new ‘venturing’ model is needed, to incubate better technologies. CO2 budgets can also be stretched furthest by re-allocating to gas, lower-carbon oil and lower-carbon industry. But divestment is a grave mistake. These are the conclusions in our new, 18-page report.


The global energy system could be decarbonised by 2050 (chart above). Yet today’s renewable technologies are only sufficient to meet c15% of the challenge. The largest component, at c50%, requires new energy technologies: both to economize demand and decarbonise supplies, which will most likely remain fossil-dominated to 2100.

Other routes are dangerous. The ‘divestment movement’ seeks to cut off capital for fossil fuels. This does not yield an energy ‘transition’, but a devastating energy ‘shortage’. Scaling up new technologies requires more capital, not less (see pages 2-7 in the PDF).

Is the investment community configured for energy transition? We fear not.

First, the investment process should favour lower-carbon suppliers across every industry, to incentivise efficiency. Within energy, this includes natural gas, low-carbon oil over higher-carbon oil (saving 500MTpa of CO2) and technology-leaders (see pp 8-11).

A new breed of venture funds is most needed, so investors can allocate capital to economically promising technologies. These opportunities are extremely exciting, based on all of our research. For example, we argue leading Energy Majors should offer up co-investments in their venture funds (see pp 12-16).

Drones & droids: deliver us from e-commerce

Small, autonomous, electric delivery vehicles are emerging. They are game-changers: rapidly delivering online purchases to customers, creating vast new economic possibilities, but also driving the energy transition. Their ascent could eliminate 500MTpa of CO2, 3.5Mboed of fossil fuels and c$3trn pa of consumer spending across the OECD. The mechanism is a re-shaping of urban consumption habits, retail and manufacturing. The opportunities are outlined in our new, 20-page report.


The average US consumer buys 2.5 tons of goods per year, served by a vast distribution network of ships, trucks and smaller vehicles, collectively responsible for 1.5 barrels of oil, $1,000 of cost and 600kg of CO2 per person per annum (page 2).

Fuel economy currently deteriorates, with each step closer to the consumer. Container ships achieve c900 ton-miles per gallon of fuel. But delivery vans, the dominant delivery mechanism for internet purchases, are least efficient, achieving just 0.02 effective ton-mpg and costing at least $3.6 per delivery (page 3).

The rise of e-commerce has already increased supply chain CO2 by c30%, and supply chain costs by 2x since the pre-internet era. On today’s technologies, CO2 will rise another 20% and cost will rise another 50% by 2030, adding 0.7Mbpd of oil demand, 120MTpa of CO2 and $500bn of cost across the OECD (pages 4-5)

Drones and droids are 90-99% less energy intensive than delivery vans, and 70-97% less costly. The technology is maturing. Thus small, autonomous, electric vehicles will move immediately, efficiently, straight to their destination (pages 6-8).

Retail and manufacturing will have be transformed by the time drones approach 50% market share in last-mile delivery. Tipping-point economies-of-scale mean that they will take market share away from cars and delivery vans very rapidly (pages 9-10).

The second half of the report focuses in on the opportunities. Retail businesses must consolidate, specialise or diversify to “sharing” models. The latter can save $1trn of consumer spending and 100MTpa of emissions in the US alone (pages 11-20).

2050 oil markets: opportunities in peak demand?

Many commentators fear long-run oil demand is on the cusp of a steep contraction, leaving oil and gas assets stranded. We are more concerned about the opposite problem. Projecting out the current trends, global oil demand is on course to keep rising to over 130Mbpd by 2050, undermining attempts to decarbonise the world’s energy system.

Our new, 20-page note reviews seven technology themes that can save 45Mbpd of long-term oil demand. We therefore find oil demand would plateau at 103Mbpd in the 2020s, before declining gradually to 87Mbpd in 2050. This is still an enormous market, equivalent to 1,000 bbls of oil being consumed every second.

Opportunities abound in the transition, in order to deliver our seven themes, improve mobility, substitute oil for gas, reconfigure refineries for changing product mixes, and to ensure that the world’s remaining oil needs are supplied as cleanly and efficiently as possible. Leading companies will seize these opportunities, driving the transition and earning strong returns in the process.

Patent Leaders in Energy

Technology leadership is crucial in energy. It drives costs, returns and future resiliency. Hence, we have reviewed 3,000 recent patent filings, across the 25 largest energy companies, in order to quantify our “Top Ten” patent leaders in energy.


This 34-page note ranks the industry’s “Top 10 technology-leaders”: in upstream, offshore, deep-water, shale, LNG, gas-marketing, downstream, chemicals, digital and renewables.

For each topic, we profile the leading company, its edge and the proximity of the competition.

Companies covered by the analysis include Aramco, BP, Chevron, Conoco, Devon, Eni, EOG, Equinor, ExxonMobil, Occidental, Petrobras, Repsol, Shell, Suncor and TOTAL.


More information? Please do not hesitate to contact us, if you would like more information about accessing this document, or taking out a TSE subscription.

US Shale: No Country for Old Completion Designs

2019 has evoked resource fears in the shale industry. They are unfounded. Even as headline productivity weakened, underlying productivity continues improving at an exciting pace. These conclusions are substantiated by reviewing 350 technical papers, published by the shale industry in summer-2019. Major improvements are gathering momentum, in shale-EOR, machine learning techniques, digitalization and frac fluid chemistry.


Discussed companies include Apache, BP, Conoco, Chevron, Devon, ExxonMobil, Halliburton, Occidental, Pioneeer & Schlumberger.

Page 2 compares 2019’s shale performance to-date with our January forecasts, identifying that initial-month producutivity has been 20% weaker YoY.

Page 3-4 shows how continued productivity improvements matter, to unlock >20Mbpd of potential US shale output, plus $300bn of FCF by 2025 (at $50/bbl oil).

Pages 5-8 explain away the apparent degradation in resource productivity: it is a function of three alterations to completion designs.

Pages 9-12 outline 350 technical papers from the shale industry in summer-2019. They restore confidence: the industry is not facing systemic resource issues.

Page 12 covers 24 technical papers into “parent-child” issues. We were surprised by the number that were ‘negative’ versus the pragmatic solutions offered in others.

Page 13, 14 & 17 cover leading digitalization technologies: deployment of machine learning increased 5x YoY, while DAS/DTS increased 3x YoY in 2019.

Pages 14-16 cover the maturation of shale-EOR, which was the greatest YoY improvement, reaching 32 papers in 2019. The cutting-edge of EOR is exciting.

Page 18 outlines other technical highlights to drive future productivity higher.

Mero Revolutions: countering CO2 in pre-salt Brazil?

The super-giant Mero field in pre-salt Brazil is not like its predecessors. While prolific, it has a 2x higher gas cut, of which c45% is corrosive and environmentally unpalatable CO2. Hence, Petrobras, Shell, TOTAL and two Chinese Majors are pushing the boundaries of deepwater technology. Our new, 16-page note assess four innovation areas, which could unlock $2bn of NPV upside. But the distribution of outcomes remains broad. $4bn is at risk if the CO2-challenges are not overcome.


Page 2 provides background on pre-salt Brazil, especially the flagship Lula project, which a new super-giant, Mero, is trying to emulate.

Page 3-4 contrast Mero to Lula, based on data from flow-tests. Mero has a 2x higher gas-cut and c8x higher CO2.

Page 5 reviews Petrobras’s own internal concerns over CO2-handling at Mero, and how they are expected to sway the decline rates at the field.

Page 6 outlines our valuation of the Mero oilfield, testing different CO2-handling scenarios. Our full model is also available.

Pages 7-8 review Mero’s FPSO design adaptations, to handle the field’s higher gas and CO2. These will be 2-2.5x larger FPSOs than Lula, by tonnage.

Pages 8-10 illustrate pipeline bottlenecks facing pre-salt Brazil. After considering alternative options (re-injection, LNG), we argue more pipelines may be needed.

Pages 10-12 describe riser innovations, which may help handle the risks of CO2-corrosion at Mero. One option is overly complex. The other is more promising.

Pages 12-16 cover the holy grail for Mero’s CO2, which is subsea CO2 separation. This would be a major industry advance, and unlock further billion-barrel resource opportunities. Upcoming hurdles and challenges are assessed.

Pages 15-16, in particular, cover Shell’s industry-leading deepwater technology, which may be helpful in maximising value from the resource, longer-term.

Johan Sverdrup: Don’t Decline?

Equinor is deploying three world-class technologies to mitigate Johan Sverdrup’s decline rates, based on reviewing c115 of the company’s patents and dozens of technical papers. Our new 15-page note outlines how its efforts may unlock an incremental $3-5bn of value from the field, as production surprises to the upside.


Pages 2-3 provide the context of the Johan Sverdrup field, its implied decline rates and how their variability will determine the field’s ultimate value.

Page 4 re-caps the concept of decline rates and how they should be measured.

Pages 5-7 recount the history of Digital Twin technologies, the cutting edge of their application offshore Norway and evidence for Equinor’s edge, as it deploys the technology at Sverdrup.

Pages 8-11 illustrate the upside in Permanent Reservoir Monitoring, comparing Equinor’s plans versus prior achievements deploying the technology off Norway.

Page 12-14 show the cutting-edge technology that excites us most: combining two areas where Equinor has established a leading edge. This opportunity can improve well-level production rates by c1.5x.

Page 15 ends by touching upon other technologies that will be applied at Sverdrup, quantifying Equinor’s offshore patent filings versus other listed Majors’.