Venezuelan Oil Exodus

    Equinor And TotalEnergies Exit From Petrocedeño Project Due To Environmental Concerns

    Total’s solar PV system integrated into a carport at Renault Nissan Automotive India. The project was developed, built, and operated by Total Solar DG. (Image Courtesy Of TotalEnergies)

    Norwegian energy giant, Equinor, and French major, TotalEnergies, sold their stakes in the Petrocedeño project in Venezuela to Corporación Venezolana del Petróleo (CVP), a PdVSA company. Equinor held a 9.67% stake in the project and TotalEnergies held a 30.32% stake in the project. TotalEnergies, being the larger shareholder, said that it will incur a US$1.38 billion capital loss from the sale.

    “The transaction supports Equinor’s corporate strategy to focus its portfolio on international core areas and prioritized geographies where Equinor can leverage its competitive advantages,” said Equinor in a statement.

    “TotalEnergies’ strategy, approved by its shareholders in May 2021, aims at focusing new oil investments on low-carbon intensity projects, which does not correspond to extra-heavy oil development projects in the Orinoco Belt,” said Arnaud Breuillac, president of exploration and production at TotalEnergies.

    For Equinor, the sale marks a nearly complete exit from Venezuela, a region it has been operating in since 1994. Equinor remaining asset is its 51% stake in the offshore exploration license of Cocuina in Plataforma Deltana Block 4 (TotalEnergies holds the other 49%). Aside from that, TotalEnergies has a 69.5% stake in the Yucal Placer gas field (operated by Ypergas S.A., 30%). Even with these assets, Total noted that less that 0.5% of its 2020 production came from Venezuela.

    ESG Ambitions

    The Petrocedeño project is involved in taking heavier crude oil from the Orinoco Belt area onshore Venezuela and turning it into lighter crude oil. Concerns regarding the project’s carbon intensity seem to be the main reasons as to why Equinor and TotalEnergies sold their stakes. Compared to their peers, both companies have been outspoken about their ESG objectives and carbon neutrality ambitions.

    In its June 2021 Capital Markets Day presentation, Equinor outlined a plan to reduce its net carbon intensity (Scope 1, 2, and 3 emissions) by 20% by 2030, 40% by 2035, and then 100% by 2050. In order to meet this goal, Equinor plans on increasing its allocation of growth capital expenditures (capex) to renewables. In 2020, Equinor spent around just 4% of its growth capex on renewables and low-carbon solutions. It expects that number to grow to 12% this year, then over 50% by 2030.

    Similarly, TotalEnergies has pledged to achieve carbon neutrality by 2050 or earlier. Renewable energy plays a big part in reducing emissions, as evidenced by TotalEnergies’ push in solar energy and Equinor’s plays in offshore wind energy (see “Integrated Ingenuity,” Second Quarter 2021 ESG Review, p. 16). However, an equally important factor is reducing the emissions from existing and planned fossil fuel projects. Even if undertakings like the Petrocedeño project are profitable, they may not be worth it due to their environmental consequences. Put another way, we may see oil and gas majors continue to turn down projects due to insufficient ESG criteria, not because of financials.

    TotalEnergies’ Solar Investments

    TotalEnergies leads oil majors in solar investments. And impressively enough, most of it happened during the pandemic. TotalEnergies’ solar investments had been relatively subdued since acquiring two-thirds of American solar photovoltaics (PV) cell and panel manufacturer, SunPower, in 2011. Everything changed when TotalEnergies secured around 2 GW of solar capacity in February 2020. Then in September 2020, the French major acquired 3.3 GW of solar capacity in Spain, all of which is expected to be operational by 2025.

    In early February 2021, the French energy giant acquired 2.2 GW of solar projects and 600 MW of Texas-based battery storage assets from SunChase Power and MAP RE/ES. The announcement came just weeks after TotalEnergies entered into a 50/50 joint venture with 174 Power Global to develop 12 utility-scale solar and energy storage projects with a total projected capacity of 1.6 GW. TotalEnergies now has nearly 4 GW of US renewable capacity projects in its pipeline. All projects are expected to come online between 2022 and 2024 as part of the company’s goal to have 35 GW of renewable generation capacity by 2035. According to TotalEnergies, its gross power generation capacity was 12 GW (7 GW of renewables) as of the end of 2020. “I am very pleased that TotalEnergies is further contributing to the development of solar power in the United States. We look forward to taking advantage of the many growth opportunities in the US market to address the challenges of the energy transition,” said Patrick Pouyanné, chair and CEO of TotalEnergies.

    A map of Total’s 2.2 GW of solar projects and 600 MW of Texas-based battery storage assets. (Image Courtesy Of TotalEnergies)

    BP And Equinor’s Wind Investments

    On August 4, 2020, BP announced a major shift in its global strategy. From “International Oil Company to Integrated Energy Company,” the strategy detailed specific ways in which BP was investing in renewables and reducing emissions to achieve its goal to become net-zero by 2050 — which it had originally announced in February 2020. Arguably the biggest takeaway from the release was the following statement: “By 2030, BP aims to have developed around 50 GW of net renewable generating capacity — a 20-fold increase from 2019 — and to have doubled its consumer interactions to 20 million a day. Over the same period, BP’s oil and gas production is expected to reduce by at least one million barrels of oil equivalent a day, or 40%, from 2019 levels.”

    As of the time of this writing, BP has nine onshore wind farms across six states. Its US wind farms have a gross generating capacity of 1.7 GW, but all of its projects were onshore. That is, until September 2020 when BP announced it would pay Equinor US$1.1 billion for a 50% stake in its Empire Wind and Beacon Wind offshore assets. The transaction was finalized on January 25, 2021, two weeks after the New York Energy Research and Development Authority announced it had selected Equinor and BP to provide the state of New York with offshore wind power. Together, the two projects span over 200,000 acres off the US east coast and are projected to have a combined capacity of 4.4 GW. Equinor and BP will work together to develop the projects over the coming years.

    BP and Equinor are both offshore oil and gas engineering specialists that plan on translating their core competencies to offshore wind. Equinor has been drilling in the North Sea for decades. But those assets are maturing and could become unprofitable by 2030, even with technological advancements. Luckily, the North Sea’s continental shelf is uniquely shallow, making it an ideal location to develop massive offshore wind projects. This is exactly what Equinor is doing. The company plans on becoming a global leader in offshore wind, growing its renewable capacity from 500 MW in 2019, to 4 GW to 6 GW by 2026, then to between 12 GW and 16 GW by 2035. By 2050, Equinor believes Europe will generate 450 GW of power from offshore wind, nearly half of which could come from the North Sea.