1 00:00:00,360 --> 00:00:03,040 Speaker 1: This is Dana Perkins and you're listening to Switched on 2 00:00:03,360 --> 00:00:06,600 Speaker 1: the podcast brought to you by BNAF, and today we 3 00:00:06,680 --> 00:00:10,560 Speaker 1: talk about divestment. Members of our Sustainable Finance team have 4 00:00:10,640 --> 00:00:13,160 Speaker 1: come on this show to discuss the pros and cons 5 00:00:13,160 --> 00:00:17,200 Speaker 1: of financial players divesting from companies with high carbon footprints, 6 00:00:17,360 --> 00:00:20,920 Speaker 1: but today we talk about the companies themselves, specifically oil 7 00:00:20,960 --> 00:00:23,439 Speaker 1: and gas, and how they are divesting from some of 8 00:00:23,480 --> 00:00:26,840 Speaker 1: their more polluting assets. However, it's more complicated than that, 9 00:00:27,040 --> 00:00:29,720 Speaker 1: and just because an asset has been sold doesn't mean 10 00:00:29,760 --> 00:00:33,600 Speaker 1: that it's not emitting anymore, often with less transparency than before. 11 00:00:33,800 --> 00:00:37,239 Speaker 1: We'll also discuss the impact of commodity price fluctuations and 12 00:00:37,320 --> 00:00:40,919 Speaker 1: how those have impacted the rate of divestment, and how 13 00:00:41,000 --> 00:00:44,800 Speaker 1: divestment might tie into a wider business strategy that includes 14 00:00:44,880 --> 00:00:48,360 Speaker 1: selling of renewables assets as well. Much of today's show 15 00:00:48,440 --> 00:00:51,960 Speaker 1: will focus on the international oil Companies or IOCs, which 16 00:00:51,960 --> 00:00:55,400 Speaker 1: are privately owned and operate globally. The Oil Majors are 17 00:00:55,440 --> 00:00:58,440 Speaker 1: a subset of six of the IOCs that control the 18 00:00:58,480 --> 00:01:01,800 Speaker 1: majority of oil tanker charts during globally. These are different 19 00:01:01,800 --> 00:01:04,840 Speaker 1: from the national oil companies or noocs, which are owned 20 00:01:04,840 --> 00:01:07,360 Speaker 1: by the governments of sovereign nations and won't come up 21 00:01:07,400 --> 00:01:11,640 Speaker 1: as often today. We also compare divestment across upstream, midstream 22 00:01:11,720 --> 00:01:16,280 Speaker 1: and downstream. Upstream referring to exploration and production of oil 23 00:01:16,280 --> 00:01:20,520 Speaker 1: and natural gas, while downstream refers to converting crude into 24 00:01:20,560 --> 00:01:24,800 Speaker 1: finished products such as processing and refining. Midstream, well, it's 25 00:01:24,800 --> 00:01:27,760 Speaker 1: in between. It's everything that happens between those two points, 26 00:01:27,800 --> 00:01:31,600 Speaker 1: including transportation and storage. Tom erlands Reese joins me in 27 00:01:31,640 --> 00:01:34,120 Speaker 1: hosting the show, and we speak with David Doherty, who 28 00:01:34,200 --> 00:01:37,040 Speaker 1: is the head of Oil and Renewable Fuels Research here 29 00:01:37,040 --> 00:01:40,520 Speaker 1: at BNF. He highlights some findings from the report Oil 30 00:01:40,560 --> 00:01:44,760 Speaker 1: and Gas Divestment Trends twenty twenty three Divestment Sload. BNF 31 00:01:44,800 --> 00:01:47,319 Speaker 1: clients will be able to find this report at BNF 32 00:01:47,360 --> 00:01:50,279 Speaker 1: go on the Bloomberg Terminal, and at BNF dot com. 33 00:01:50,440 --> 00:01:53,320 Speaker 1: If you like this show, subscribe on whatever you're listening 34 00:01:53,320 --> 00:01:55,360 Speaker 1: to us on now and you'll receive an alert each 35 00:01:55,360 --> 00:01:57,280 Speaker 1: week when we publish a new show, And if you 36 00:01:57,320 --> 00:02:00,000 Speaker 1: provide us with a review, it'll make us more discoverable 37 00:02:00,120 --> 00:02:02,920 Speaker 1: by others. But right now, let's jump into our conversation 38 00:02:03,120 --> 00:02:05,960 Speaker 1: with David about oil and gas divestment trends. 39 00:02:15,720 --> 00:02:17,160 Speaker 2: Hi Tom, Hi, Dina. 40 00:02:17,440 --> 00:02:19,320 Speaker 1: So I've got a co host again today. So Tom 41 00:02:19,360 --> 00:02:21,560 Speaker 1: and I are pairing up to speak with David. 42 00:02:22,040 --> 00:02:23,359 Speaker 3: Hi Danna, Hi Tom, how are you doing? 43 00:02:23,720 --> 00:02:23,800 Speaker 2: So? 44 00:02:24,200 --> 00:02:28,160 Speaker 1: I guess let's jump right in into actually kind of 45 00:02:28,240 --> 00:02:30,679 Speaker 1: who these companies are, maybe not by name, but is 46 00:02:31,080 --> 00:02:33,880 Speaker 1: a group because oil and gas companies can be grouped 47 00:02:33,880 --> 00:02:37,239 Speaker 1: into broadly two categories. Right, We've got national oil companies 48 00:02:37,320 --> 00:02:41,200 Speaker 1: and international oil companies within that. Are we talking about 49 00:02:41,240 --> 00:02:45,840 Speaker 1: both the national and international oil companies or we potentially 50 00:02:45,880 --> 00:02:48,840 Speaker 1: only talking about the group of companies that are publicly 51 00:02:48,840 --> 00:02:51,560 Speaker 1: listed entities where there are lots of eyes on their 52 00:02:51,680 --> 00:02:56,080 Speaker 1: earning statements and divestment potentially is a motivation for them. 53 00:02:56,240 --> 00:02:58,720 Speaker 4: Yeah, you're right, we're talking about the international oil company. 54 00:02:58,800 --> 00:03:01,880 Speaker 4: So mostly the listed oil producers in Europe and the 55 00:03:02,000 --> 00:03:04,000 Speaker 4: US for example, that shall be p. 56 00:03:04,440 --> 00:03:07,239 Speaker 1: And what percentage of the overall production of oil and 57 00:03:07,320 --> 00:03:09,160 Speaker 1: gas does is actually represent So. 58 00:03:09,160 --> 00:03:11,119 Speaker 4: All about twenty percent of the oil or a little 59 00:03:11,160 --> 00:03:12,840 Speaker 4: bit over twenty percent of the oil that comes out 60 00:03:12,880 --> 00:03:15,240 Speaker 4: of the ground can be represented by these IOSes. 61 00:03:15,600 --> 00:03:18,040 Speaker 1: So divestment from some of these acids and we can 62 00:03:18,040 --> 00:03:20,240 Speaker 1: talk about which ones are up, mid and downstream in 63 00:03:20,280 --> 00:03:22,760 Speaker 1: just a moment. But before we get to that, there 64 00:03:22,840 --> 00:03:25,560 Speaker 1: has been a lot of divestment that's taken place over 65 00:03:25,560 --> 00:03:27,800 Speaker 1: the last decade plus, but things have started to cool 66 00:03:27,880 --> 00:03:31,680 Speaker 1: more recently and the last two years, let's say, we've 67 00:03:31,800 --> 00:03:35,960 Speaker 1: seen really elevated commodity prices and this has potentially had 68 00:03:35,960 --> 00:03:38,280 Speaker 1: an impact on divestment. Can you talk a little bit 69 00:03:38,280 --> 00:03:41,360 Speaker 1: more about that interplay between how much money they're making 70 00:03:41,400 --> 00:03:45,400 Speaker 1: from oil and gas and how that's really impacting divestment strategies. 71 00:03:45,600 --> 00:03:47,920 Speaker 4: Yeah, there's kind of an inverse relationship when it comes 72 00:03:47,920 --> 00:03:50,040 Speaker 4: to divestment and oil prices. You know, when you have 73 00:03:50,080 --> 00:03:52,640 Speaker 4: an high oil price, you're more likely to be making 74 00:03:52,680 --> 00:03:55,120 Speaker 4: money from your oil asset, right, And it's sort of 75 00:03:55,120 --> 00:03:57,320 Speaker 4: common sense. So you do see in periods of low 76 00:03:57,360 --> 00:04:00,160 Speaker 4: prices that you see some of those higher breaking in 77 00:04:00,200 --> 00:04:02,840 Speaker 4: assets being sold, and when you have high oil prices, 78 00:04:02,840 --> 00:04:04,760 Speaker 4: things look a bit rosier, right, so you're more likely 79 00:04:04,800 --> 00:04:05,840 Speaker 4: to keep it onto your books. 80 00:04:06,400 --> 00:04:09,320 Speaker 2: So I'm just trying to understand this a little bit 81 00:04:09,840 --> 00:04:13,200 Speaker 2: because I think that you know, being BNF being focused 82 00:04:13,200 --> 00:04:15,640 Speaker 2: on the energy transition, we're always going to think of 83 00:04:15,720 --> 00:04:18,200 Speaker 2: what we're seeing in terms of the energy transition. But 84 00:04:18,279 --> 00:04:21,720 Speaker 2: if divestment is kind of connected to oil prices, is 85 00:04:21,760 --> 00:04:25,040 Speaker 2: there a case that we're seeing oil investment and divestment 86 00:04:25,160 --> 00:04:27,279 Speaker 2: is a reflection of what's happening in the with the 87 00:04:27,320 --> 00:04:30,840 Speaker 2: oil price globally, and that we are attaching a rational 88 00:04:30,960 --> 00:04:33,120 Speaker 2: to it because of the lens that we see the world. 89 00:04:33,360 --> 00:04:34,719 Speaker 4: Yeah, there is a little bit of that. I'm not 90 00:04:34,720 --> 00:04:36,960 Speaker 4: going to lie the oil industry. When oil prices are high, 91 00:04:37,040 --> 00:04:38,200 Speaker 4: the more willing to spend money. 92 00:04:38,279 --> 00:04:38,400 Speaker 3: Right. 93 00:04:38,440 --> 00:04:40,440 Speaker 4: I would say there's a bit of a trend difference 94 00:04:40,480 --> 00:04:43,680 Speaker 4: between the investment and divestment levels that we've seen over 95 00:04:43,720 --> 00:04:46,720 Speaker 4: the past few years, where divestment as prices go up, 96 00:04:47,120 --> 00:04:50,440 Speaker 4: drops when prices go down, increases on the spending side, 97 00:04:50,440 --> 00:04:52,560 Speaker 4: though it has changed a little bit. Normally, when you 98 00:04:52,600 --> 00:04:55,719 Speaker 4: have high oil prices, you have high capital expenditure. For example, 99 00:04:55,800 --> 00:04:57,599 Speaker 4: all the way up to twenty fifteen, that was pretty 100 00:04:57,600 --> 00:04:59,680 Speaker 4: linear in terms of its trend. That's changed a little 101 00:04:59,680 --> 00:05:01,320 Speaker 4: bit in the past couple of years because oil and 102 00:05:01,360 --> 00:05:03,960 Speaker 4: gas companies have become a lot smarter with how they're 103 00:05:04,000 --> 00:05:05,720 Speaker 4: spending their money, way more rational. 104 00:05:05,880 --> 00:05:07,880 Speaker 3: They've sort of cut the fat off of their. 105 00:05:08,440 --> 00:05:11,400 Speaker 4: Top line, and we've seen a trend now where the 106 00:05:11,720 --> 00:05:14,360 Speaker 4: investment is a little bit over half of what it 107 00:05:14,400 --> 00:05:17,159 Speaker 4: was in twenty fifteen in the upstream side of stuff. 108 00:05:17,240 --> 00:05:19,200 Speaker 4: But it doesn't necessarily mean that the barrels that are 109 00:05:19,200 --> 00:05:20,800 Speaker 4: coming out of the ground has half. So it's a 110 00:05:20,800 --> 00:05:23,159 Speaker 4: really interesting trend where oil companies have, you know, they've 111 00:05:23,160 --> 00:05:26,479 Speaker 4: advanced for technologies, become better at where they're spending their money. So, yeah, 112 00:05:26,520 --> 00:05:28,240 Speaker 4: we do sort of look at that, or we're trying 113 00:05:28,240 --> 00:05:31,520 Speaker 4: to attach a narrative of divestment means moving towards something else, 114 00:05:31,560 --> 00:05:33,719 Speaker 4: but it's probably a bit more fundamental than that. 115 00:05:33,800 --> 00:05:34,680 Speaker 3: I would say, Well, so. 116 00:05:34,720 --> 00:05:37,160 Speaker 1: Then get into that, because you identified kind of five 117 00:05:37,279 --> 00:05:40,840 Speaker 1: key factors that would influence a divestment decision, and can 118 00:05:40,880 --> 00:05:42,880 Speaker 1: you talk a little bit more about what those are. 119 00:05:43,200 --> 00:05:43,600 Speaker 3: Yeah. Sure. 120 00:05:43,640 --> 00:05:45,720 Speaker 4: So the first one is this sort of focused exploration 121 00:05:45,800 --> 00:05:47,680 Speaker 4: that I was just talking about. And if we think 122 00:05:47,760 --> 00:05:49,920 Speaker 4: back to twenty fourteen, right, we had like one hundred 123 00:05:49,920 --> 00:05:52,240 Speaker 4: and twelve one hundred and fifteen dollars for a barrel 124 00:05:52,279 --> 00:05:54,960 Speaker 4: of Brent. Now it's in and around eighty, Right, it 125 00:05:55,000 --> 00:05:58,880 Speaker 4: doesn't necessarily mean that the sort of focus of that 126 00:05:58,920 --> 00:06:01,240 Speaker 4: oil company is going to adjust with that, You're not 127 00:06:01,279 --> 00:06:03,680 Speaker 4: going to see a lot lower of investment because the 128 00:06:03,720 --> 00:06:06,640 Speaker 4: price has collapsed. You're in fact seeing just a much 129 00:06:06,720 --> 00:06:08,880 Speaker 4: more efficient model business model. 130 00:06:08,920 --> 00:06:09,839 Speaker 3: In general, oil. 131 00:06:09,680 --> 00:06:12,600 Speaker 4: Companies are looking at high return barrels with a much 132 00:06:12,720 --> 00:06:16,279 Speaker 4: shorter life cycle than those previous ones we saw years ago, 133 00:06:16,320 --> 00:06:19,640 Speaker 4: like you know, deep offshore drilling for example, projects with 134 00:06:19,720 --> 00:06:22,160 Speaker 4: like a thirty year lifetime. They've just changed a bit 135 00:06:22,200 --> 00:06:25,200 Speaker 4: because the demand cycle in future is a bit less certain, right, 136 00:06:25,240 --> 00:06:27,359 Speaker 4: it's not always growing on the demand side. Then you 137 00:06:27,400 --> 00:06:30,320 Speaker 4: see competition. That's another one. We're looking at oil companies 138 00:06:30,320 --> 00:06:32,760 Speaker 4: for a while, we're quite content to go into a 139 00:06:33,080 --> 00:06:35,800 Speaker 4: market with a national oil company in NC for example, 140 00:06:35,920 --> 00:06:38,440 Speaker 4: and compete in their domestic market. They're just a bit 141 00:06:38,520 --> 00:06:41,760 Speaker 4: more sort of conservative now, i'd say, and they're competing 142 00:06:41,760 --> 00:06:42,840 Speaker 4: where they can compete. 143 00:06:42,960 --> 00:06:43,840 Speaker 3: There's two parts. 144 00:06:43,880 --> 00:06:48,160 Speaker 4: Then after that debt reduction, So spending money to reduce 145 00:06:48,200 --> 00:06:50,040 Speaker 4: their debt is a huge trend we've seen over the 146 00:06:50,080 --> 00:06:50,600 Speaker 4: past few years. 147 00:06:50,640 --> 00:06:53,000 Speaker 3: The financial markets have also rewarded that, which is good 148 00:06:53,000 --> 00:06:53,760 Speaker 3: for oil companies. 149 00:06:53,920 --> 00:06:56,520 Speaker 4: Like you said, Tom, energy transition is a big part 150 00:06:56,560 --> 00:06:58,760 Speaker 4: of their rationale, but it's not the main part of 151 00:06:58,760 --> 00:07:01,599 Speaker 4: the rationale. And then only climate related risks. And I 152 00:07:01,600 --> 00:07:05,560 Speaker 4: don't mean whether a vent near a refinery. This is politics, 153 00:07:05,760 --> 00:07:09,440 Speaker 4: this is consumer pressure. This is pressure from your investors 154 00:07:09,480 --> 00:07:11,920 Speaker 4: to change the way you're behaving, so to speak, when 155 00:07:11,960 --> 00:07:13,600 Speaker 4: it comes to your business model. 156 00:07:13,640 --> 00:07:15,400 Speaker 3: So there's kind of five things we look at there. 157 00:07:15,440 --> 00:07:18,720 Speaker 4: That's focusing a bit more competing where you can compete, basically, 158 00:07:18,920 --> 00:07:21,640 Speaker 4: reducing your debt, focusing on the transition a bit, and 159 00:07:21,680 --> 00:07:23,120 Speaker 4: then climate related risks. 160 00:07:23,280 --> 00:07:25,440 Speaker 2: So it's interesting thinking about, you know, the role of 161 00:07:25,480 --> 00:07:28,280 Speaker 2: the transition and the climate related risks. They may not 162 00:07:28,360 --> 00:07:31,320 Speaker 2: be the main driver, but in a way that you 163 00:07:31,560 --> 00:07:35,000 Speaker 2: have the same drivers as you had before, but how 164 00:07:35,040 --> 00:07:38,160 Speaker 2: companies are responding to those drivers is changing and that's 165 00:07:38,480 --> 00:07:40,400 Speaker 2: what's maybe different. 166 00:07:40,520 --> 00:07:41,720 Speaker 3: Yeah. Absolutely, Yeah. 167 00:07:41,800 --> 00:07:45,200 Speaker 1: So let's talk about what's actually comprised of this divestment. 168 00:07:45,280 --> 00:07:49,000 Speaker 1: So are there themes within this? Is it mostly upstream? 169 00:07:49,040 --> 00:07:51,800 Speaker 1: Is it mostly downstream assets? Kind of what assets? Are 170 00:07:51,880 --> 00:07:54,440 Speaker 1: you seeing a trend of them offloading? 171 00:07:54,800 --> 00:07:58,560 Speaker 4: Yeah, about about half of the assets in twenty fifteen. 172 00:07:58,120 --> 00:08:01,000 Speaker 3: That were let's say offloaded, where from the upstream side 173 00:08:01,000 --> 00:08:01,400 Speaker 3: of things? 174 00:08:01,800 --> 00:08:04,120 Speaker 4: And then the rest is a mix of midstream of 175 00:08:04,240 --> 00:08:07,280 Speaker 4: refining and in more recent years actually of renewable assets 176 00:08:07,280 --> 00:08:09,239 Speaker 4: in the last two to three years of renewable assets. 177 00:08:09,360 --> 00:08:11,600 Speaker 1: So sticking on the upstream stuff for a second, if 178 00:08:11,600 --> 00:08:14,720 Speaker 1: they're selling that on, presumably then they are going to 179 00:08:14,760 --> 00:08:19,520 Speaker 1: be buying the crude from those companies that they've actually 180 00:08:19,520 --> 00:08:22,040 Speaker 1: sold those assets onto or sold those rights onto, to 181 00:08:22,120 --> 00:08:24,920 Speaker 1: then use in their refining capacity. Or are we then 182 00:08:25,000 --> 00:08:28,440 Speaker 1: thinking that actually, this is an interpretation that largely IOCs 183 00:08:28,520 --> 00:08:32,480 Speaker 1: are seeing some amount of peak demand in oil consumption 184 00:08:32,679 --> 00:08:35,719 Speaker 1: and that by selling that on they may not necessarily 185 00:08:35,800 --> 00:08:38,560 Speaker 1: be as focused on the refining business in the long term, 186 00:08:38,600 --> 00:08:40,600 Speaker 1: and that maybe that's going to be in a second wave. 187 00:08:40,920 --> 00:08:42,439 Speaker 3: No, I don't think it's that's right forward. 188 00:08:42,480 --> 00:08:45,000 Speaker 4: I would pull it back to the very fundamental part 189 00:08:45,000 --> 00:08:46,959 Speaker 4: of what oil and gas companies have said they're going 190 00:08:47,000 --> 00:08:49,440 Speaker 4: to do. If we think about twenty twenty, no oil 191 00:08:49,480 --> 00:08:52,800 Speaker 4: companies had made any pledges towards net zero or reducing emissions, 192 00:08:52,840 --> 00:08:55,439 Speaker 4: and we've seen this massive wave since then of saying 193 00:08:55,640 --> 00:08:58,280 Speaker 4: I'm going to target lower emissions from my operations. 194 00:08:58,320 --> 00:09:01,000 Speaker 3: It's generally an intensity bait metric. 195 00:09:01,080 --> 00:09:03,520 Speaker 4: Right, for every barrel I produce or for every duel 196 00:09:03,559 --> 00:09:06,440 Speaker 4: i'll produce, I'll reduce my emissions by x percent, right, 197 00:09:06,480 --> 00:09:08,600 Speaker 4: and by a given year. So if you sell the 198 00:09:08,720 --> 00:09:13,480 Speaker 4: highest emitting assets, you're really helping your energy intensity of 199 00:09:13,520 --> 00:09:15,280 Speaker 4: the bowels that you're selling or the jewels that you're 200 00:09:15,320 --> 00:09:16,120 Speaker 4: selling into the market. 201 00:09:16,200 --> 00:09:16,400 Speaker 3: Right. 202 00:09:16,520 --> 00:09:19,120 Speaker 4: The oil market doesn't necessarily take oil out of the 203 00:09:19,120 --> 00:09:21,199 Speaker 4: ground and put it through its own refinery and then 204 00:09:21,200 --> 00:09:22,600 Speaker 4: sell it in its own fore court. 205 00:09:22,760 --> 00:09:24,319 Speaker 3: It's way more mixed than that. 206 00:09:24,360 --> 00:09:26,560 Speaker 4: The market is a huge cocktail when it comes to 207 00:09:26,600 --> 00:09:29,080 Speaker 4: what goes into the fuel that we see. So you 208 00:09:29,120 --> 00:09:32,560 Speaker 4: could be a exon selling your recrued oil to a BP, 209 00:09:32,720 --> 00:09:35,880 Speaker 4: for example, for BP to turn into gasoline if it's closer, 210 00:09:35,880 --> 00:09:39,000 Speaker 4: if it's cheaper. That's the logic. The market's really efficient 211 00:09:39,000 --> 00:09:39,840 Speaker 4: in the oil sector. 212 00:09:40,360 --> 00:09:42,439 Speaker 2: So I mean, I'm just thinking back to this whole 213 00:09:42,720 --> 00:09:46,040 Speaker 2: trend of it's mostly upstream assets that are being divested from. 214 00:09:46,160 --> 00:09:48,239 Speaker 2: Is that partly because in the model you've just described, 215 00:09:48,760 --> 00:09:52,080 Speaker 2: things that are further downstream are less exposed to the 216 00:09:52,120 --> 00:09:55,120 Speaker 2: global price. It's the upstream assets because in a way 217 00:09:55,160 --> 00:09:58,920 Speaker 2: they are buying oil and then selling on refined products, 218 00:09:59,120 --> 00:10:01,880 Speaker 2: and so either side of the equation you're sort of 219 00:10:02,480 --> 00:10:05,560 Speaker 2: somewhat hedged against. The global oil price is that also 220 00:10:06,160 --> 00:10:09,880 Speaker 2: like an indication of how much this divestment is price driven, 221 00:10:09,960 --> 00:10:11,240 Speaker 2: is the fact that so much of it is the 222 00:10:11,320 --> 00:10:12,679 Speaker 2: upstream part of the business. 223 00:10:12,800 --> 00:10:13,520 Speaker 3: Yeah, a little bit. 224 00:10:13,640 --> 00:10:15,560 Speaker 4: I mean back to my point when I'm thinking of 225 00:10:15,760 --> 00:10:18,720 Speaker 4: I've spent X amount of billion dollars on this project, 226 00:10:18,720 --> 00:10:20,600 Speaker 4: than this project is going to take thirty years to 227 00:10:20,600 --> 00:10:21,200 Speaker 4: pay me back. 228 00:10:21,280 --> 00:10:22,320 Speaker 3: If I'm an oil company. 229 00:10:22,360 --> 00:10:25,160 Speaker 4: I'm looking at this on certain trend of evs, this 230 00:10:25,280 --> 00:10:29,079 Speaker 4: uncertain trend of sustainable aviation fuels, will people consume oil 231 00:10:29,120 --> 00:10:31,400 Speaker 4: and future in thirty years, And I'm thinking, do I 232 00:10:31,440 --> 00:10:33,800 Speaker 4: want that thirty year asset on my book, especially if 233 00:10:33,800 --> 00:10:35,480 Speaker 4: it's got a high cost and I don't know the 234 00:10:35,520 --> 00:10:38,199 Speaker 4: oil price in future. So the focus for these IOCs 235 00:10:38,240 --> 00:10:40,360 Speaker 4: has actually been to shift it to a shorter cycle. 236 00:10:40,400 --> 00:10:43,280 Speaker 4: An asset that's like a five to ten year turnaround 237 00:10:43,440 --> 00:10:45,560 Speaker 4: is very much more attractive now than one that has 238 00:10:45,640 --> 00:10:48,719 Speaker 4: a thirty year outlook. That's still sort of firmly in 239 00:10:48,760 --> 00:10:51,200 Speaker 4: the world of the NOCs, where the IOCs are trying 240 00:10:51,200 --> 00:10:53,120 Speaker 4: to be a bit more agile and how they approach 241 00:10:53,160 --> 00:10:53,640 Speaker 4: the market. 242 00:10:54,000 --> 00:10:57,600 Speaker 1: So we're talking about selling these assets on though not 243 00:10:57,720 --> 00:11:00,640 Speaker 1: winding them down. So I want to know who has 244 00:11:00,800 --> 00:11:04,680 Speaker 1: the money to put forward these incredibly capital and intensive 245 00:11:04,679 --> 00:11:07,520 Speaker 1: projects that are upstream, and really, in short, you know 246 00:11:07,600 --> 00:11:10,160 Speaker 1: who is buying these assets. 247 00:11:10,880 --> 00:11:13,439 Speaker 4: Yeah, it's a really interesting question and sort of the 248 00:11:13,480 --> 00:11:16,520 Speaker 4: obvious answers other oil companies, and the vast majority are 249 00:11:16,559 --> 00:11:19,040 Speaker 4: going to other oil companies, about seventy percent ors. So 250 00:11:19,320 --> 00:11:23,920 Speaker 4: you're seeing independent producers like the US jail patch players. 251 00:11:23,559 --> 00:11:24,559 Speaker 3: Buying a lot of it. 252 00:11:25,120 --> 00:11:27,480 Speaker 4: You're seeing a lot of refiners selling to refiners, fuel 253 00:11:27,520 --> 00:11:30,520 Speaker 4: distributors selling to fuel distributors. There is an interesting sort 254 00:11:30,520 --> 00:11:32,280 Speaker 4: of trend in the past couple of years where we're 255 00:11:32,280 --> 00:11:35,440 Speaker 4: seeing private companies and the financial sector buying some of 256 00:11:35,480 --> 00:11:38,760 Speaker 4: these assets. And that's really interesting because they're generally private, 257 00:11:38,840 --> 00:11:41,720 Speaker 4: they're generally far less transparent, and they don't face as 258 00:11:41,840 --> 00:11:45,360 Speaker 4: much pressure to clean up their assets, for example, to 259 00:11:45,440 --> 00:11:48,319 Speaker 4: lower the carbon profile of the barrels. If all of these, 260 00:11:48,360 --> 00:11:51,240 Speaker 4: for example, set with these majors who are watched and 261 00:11:51,400 --> 00:11:54,120 Speaker 4: everybody focuses on them, I think the chances are that 262 00:11:54,200 --> 00:11:56,079 Speaker 4: actually there would be a cleaner barrel in future. 263 00:11:56,360 --> 00:12:00,000 Speaker 1: Are investors who are potentially divesting or atleas putting press 264 00:12:00,040 --> 00:12:03,000 Speaker 1: sure on the oil majors to think about the carbon 265 00:12:03,040 --> 00:12:07,400 Speaker 1: intensity of their portfolio. Are they looking at where these 266 00:12:07,400 --> 00:12:09,959 Speaker 1: assets are being sold onto or once they come off 267 00:12:09,960 --> 00:12:12,080 Speaker 1: their balance sheet, it's sort of like it's gone and 268 00:12:12,200 --> 00:12:16,120 Speaker 1: no longer affiliated with the company. Therefore, the investment community 269 00:12:16,200 --> 00:12:18,800 Speaker 1: isn't thinking about that when they're actually looking at ESG. 270 00:12:19,480 --> 00:12:20,800 Speaker 3: Yeah, I think you're right there. 271 00:12:20,840 --> 00:12:23,480 Speaker 4: Unfortunately, I mean that kind of lens or that thought 272 00:12:23,480 --> 00:12:26,760 Speaker 4: process might come to play when you're thinking of investing 273 00:12:26,800 --> 00:12:29,520 Speaker 4: in other companies who approchase these assets. But if you're 274 00:12:29,559 --> 00:12:31,800 Speaker 4: an investor in the IOC and that comes off the book, 275 00:12:32,000 --> 00:12:34,680 Speaker 4: the IOC gets closer towards its target, it doesn't have 276 00:12:34,720 --> 00:12:36,880 Speaker 4: this high carbon asset. I don't think it goes beyond 277 00:12:36,920 --> 00:12:37,880 Speaker 4: that sort of perimeter. 278 00:12:38,200 --> 00:12:40,920 Speaker 2: I'm kind of interested going back to you know, who's 279 00:12:40,960 --> 00:12:44,719 Speaker 2: buying this stuff. The one stakeholder that was absent from 280 00:12:44,760 --> 00:12:46,959 Speaker 2: your list of buyers, and this surprised me a little bit, 281 00:12:47,160 --> 00:12:51,080 Speaker 2: was national oil companies NOCs. Given that they seem to 282 00:12:51,080 --> 00:12:53,280 Speaker 2: be very upstream focused and a lot of what we're 283 00:12:53,320 --> 00:12:55,480 Speaker 2: talking about being sold is upstream, I thought that they 284 00:12:55,520 --> 00:12:57,760 Speaker 2: would have been like the natural buyers. 285 00:12:57,960 --> 00:12:59,880 Speaker 4: Yeah, they're actually buying quite a bit as well. Along 286 00:12:59,880 --> 00:13:02,200 Speaker 4: with the independence, they're doing it for different reasons. So 287 00:13:02,400 --> 00:13:05,880 Speaker 4: independents generally tend to buy assets within their sort of 288 00:13:06,000 --> 00:13:06,920 Speaker 4: domestic market. 289 00:13:07,000 --> 00:13:08,360 Speaker 3: So jale patch players are. 290 00:13:08,320 --> 00:13:12,079 Speaker 4: Actually buying shale patch assetsncs are buying, but for a 291 00:13:12,200 --> 00:13:14,360 Speaker 4: very different reason. It generally tends to be they want 292 00:13:14,400 --> 00:13:17,040 Speaker 4: to gain access to a market abroad. So we've seen 293 00:13:17,320 --> 00:13:21,640 Speaker 4: the Malaysian National Company Patronas purchasing, We've seen PTT of Thailand, 294 00:13:21,679 --> 00:13:22,840 Speaker 4: and a lot of that is to do it like 295 00:13:22,880 --> 00:13:26,440 Speaker 4: their domestic demand growing, but they're domestic supply declining, so 296 00:13:26,440 --> 00:13:29,679 Speaker 4: they're buying to lock in volumes for their home market basically. 297 00:13:29,520 --> 00:13:32,760 Speaker 2: So they are not buying assets in their own countries. 298 00:13:33,040 --> 00:13:35,040 Speaker 2: Ncs are buying assets abroad. 299 00:13:35,800 --> 00:13:38,719 Speaker 4: Yeah, they have to an extent, so let's say saturated 300 00:13:38,760 --> 00:13:41,840 Speaker 4: their domestic market. In some cases like Thailand, you see 301 00:13:41,840 --> 00:13:45,520 Speaker 4: a huge decline in the reserves of oil, but demand 302 00:13:45,640 --> 00:13:47,960 Speaker 4: is not following that, so they're basically securing in supply. 303 00:13:48,440 --> 00:13:50,120 Speaker 1: Now you had mentioned this, and I don't want to 304 00:13:50,160 --> 00:13:53,600 Speaker 1: just brush over it. You had noted that oil companies 305 00:13:53,640 --> 00:13:56,880 Speaker 1: are also starting to divest from some of their renewable 306 00:13:56,920 --> 00:13:59,400 Speaker 1: and power related assets. Can you talk a little bit 307 00:13:59,440 --> 00:14:02,480 Speaker 1: about that. And where that fits into these kind of 308 00:14:02,800 --> 00:14:08,000 Speaker 1: five factors for one would consider when thinking divestment, because 309 00:14:08,000 --> 00:14:10,520 Speaker 1: I would think that these renewable assets would actually be 310 00:14:10,600 --> 00:14:14,640 Speaker 1: quite related to improving, for example, your climate related risks category. 311 00:14:15,080 --> 00:14:18,440 Speaker 4: Yeah, you're one hundred percent right. Firstly, I think oil 312 00:14:18,480 --> 00:14:19,920 Speaker 4: and gas companies are sort of damned if they do 313 00:14:19,960 --> 00:14:20,800 Speaker 4: and damned if they don't. 314 00:14:20,840 --> 00:14:20,960 Speaker 3: Right. 315 00:14:21,280 --> 00:14:23,200 Speaker 4: Their approach is that they want to get higher turns 316 00:14:23,240 --> 00:14:27,600 Speaker 4: for their investors. Generally, for a wind, solar, renewable energy 317 00:14:27,600 --> 00:14:31,240 Speaker 4: production asset that's quite low. It's about let's say six percent, 318 00:14:31,440 --> 00:14:33,920 Speaker 4: and the sort of comfort zone for oil and gas companies, 319 00:14:33,960 --> 00:14:37,320 Speaker 4: and let's say the upstream side is fourteen plus percent. Right, 320 00:14:37,320 --> 00:14:39,520 Speaker 4: that's kind of their target. Sometimes they get there, sometimes 321 00:14:39,560 --> 00:14:41,880 Speaker 4: they don't, but there's a magnitude of difference there. What 322 00:14:41,920 --> 00:14:44,800 Speaker 4: they've started to do is not necessarily selling the assets 323 00:14:44,800 --> 00:14:47,280 Speaker 4: because they're not interest in the asset. They've started to 324 00:14:47,320 --> 00:14:50,000 Speaker 4: do a thing called farming down. So farming down basically 325 00:14:50,040 --> 00:14:52,520 Speaker 4: means selling an equity stake in an asset. 326 00:14:52,600 --> 00:14:52,800 Speaker 3: Right. 327 00:14:52,960 --> 00:14:55,160 Speaker 4: If you think of a renewable energy asset, it's got 328 00:14:55,280 --> 00:14:57,880 Speaker 4: a risk profile like a utility. I'm not going to 329 00:14:57,920 --> 00:15:00,720 Speaker 4: say boring, but oil and gas returns to to fluctuate 330 00:15:00,800 --> 00:15:03,920 Speaker 4: up and down. Utilities have a much more boring profile, 331 00:15:04,000 --> 00:15:07,800 Speaker 4: which investors in many cases like. So the development phase 332 00:15:07,960 --> 00:15:10,680 Speaker 4: of a renewable energy project, the risky part, the part 333 00:15:10,680 --> 00:15:13,440 Speaker 4: where you're putting up the offshore wind farms, you're building it, 334 00:15:13,440 --> 00:15:15,400 Speaker 4: you've got to get all these things in place, is 335 00:15:15,440 --> 00:15:18,080 Speaker 4: a higher risk time. It also has a higher return. 336 00:15:18,240 --> 00:15:20,360 Speaker 4: Oil and gas companies love that. So if you're looking 337 00:15:20,360 --> 00:15:24,040 Speaker 4: at ecuinor for example, selling off its stake in Duggerbank 338 00:15:24,040 --> 00:15:26,720 Speaker 4: off the North Sea, then it increased the returns for 339 00:15:26,760 --> 00:15:29,360 Speaker 4: that project to a level in access to twelve percent 340 00:15:29,400 --> 00:15:32,000 Speaker 4: where it's more comparable with the upstream side of their 341 00:15:32,120 --> 00:15:35,400 Speaker 4: traditional business. So yeah, they're selling them these assets, they're 342 00:15:35,440 --> 00:15:37,280 Speaker 4: taking the cash from that, and they're putting it into 343 00:15:37,320 --> 00:15:39,760 Speaker 4: new developments, not necessarily always. 344 00:15:39,440 --> 00:15:41,160 Speaker 3: Of renewables, but also of renewables. 345 00:15:41,240 --> 00:15:43,400 Speaker 4: So when you read the sort of headline number there, 346 00:15:43,440 --> 00:15:45,440 Speaker 4: you're like, oh, they're selling off renewable assets. They must 347 00:15:45,480 --> 00:15:48,840 Speaker 4: be backtracking on the sort of energy transition story. What 348 00:15:48,880 --> 00:15:50,680 Speaker 4: they're actually trying to do is work out ways to 349 00:15:50,760 --> 00:15:53,560 Speaker 4: increase the return of those assets. 350 00:15:53,880 --> 00:15:55,960 Speaker 1: So let's talk a little bit about some of the 351 00:15:56,000 --> 00:15:58,680 Speaker 1: regional trends that we're seeing. And actually, just to set 352 00:15:58,720 --> 00:16:00,640 Speaker 1: context for this, the first one really is, you know, 353 00:16:00,800 --> 00:16:04,720 Speaker 1: the international oil companies I and the publicly listed oil 354 00:16:04,720 --> 00:16:08,479 Speaker 1: companies I would kind of naturally associate with North America 355 00:16:08,760 --> 00:16:12,320 Speaker 1: and with Europe and national oil companies I would see 356 00:16:12,360 --> 00:16:14,600 Speaker 1: as more active players in other parts of the world. 357 00:16:14,800 --> 00:16:17,280 Speaker 1: Is that a reasonable assumption. 358 00:16:17,920 --> 00:16:21,160 Speaker 4: Yeah, I think in general that would be correct. Oil 359 00:16:21,240 --> 00:16:23,880 Speaker 4: and gas companies that are listed or IOCs. International oil 360 00:16:23,880 --> 00:16:26,000 Speaker 4: companies like we're thinking about now, tend to be a 361 00:16:26,040 --> 00:16:28,840 Speaker 4: bit more nimble and they're a bit more international in 362 00:16:28,880 --> 00:16:31,800 Speaker 4: their operations, and national oil companies tend to be just 363 00:16:31,880 --> 00:16:34,800 Speaker 4: that right, national working in the national interest, but they 364 00:16:34,880 --> 00:16:38,080 Speaker 4: are using the divestments from IOCs to get into new markets. 365 00:16:38,280 --> 00:16:41,520 Speaker 4: So Katar Energy, for example, some of the bigger players 366 00:16:41,520 --> 00:16:43,840 Speaker 4: that we hear of in the Middle East are buying 367 00:16:43,880 --> 00:16:45,200 Speaker 4: usets in other parts of the world. 368 00:16:45,520 --> 00:16:48,280 Speaker 1: So, and that raises a very good point because we're 369 00:16:48,360 --> 00:16:51,080 Speaker 1: essentially talking about where the companies are headquartered as opposed 370 00:16:51,120 --> 00:16:54,360 Speaker 1: to where their business activities are, which could be anywhere. 371 00:16:54,400 --> 00:16:57,080 Speaker 1: But when it comes to where these companies are headquartered 372 00:16:57,080 --> 00:16:59,760 Speaker 1: and those who are actually going through this divestment trend 373 00:16:59,840 --> 00:17:02,920 Speaker 1: the moment, where is the trend, what parts of the 374 00:17:02,920 --> 00:17:05,720 Speaker 1: world are leading the way on this, and also which 375 00:17:05,800 --> 00:17:07,880 Speaker 1: companies would you say have been most active. 376 00:17:08,240 --> 00:17:12,360 Speaker 4: Yeah, the European IOCs like BP Shell Total Energies, for example, 377 00:17:12,520 --> 00:17:15,720 Speaker 4: are probably leading in terms of their divestment, but they're 378 00:17:15,720 --> 00:17:19,160 Speaker 4: also leading in terms of their investment in low carbon energies. 379 00:17:19,240 --> 00:17:20,479 Speaker 3: There's a few reasons behind that. 380 00:17:20,640 --> 00:17:24,760 Speaker 4: Naturally, Europe has more aggressive policies or more targeted policies 381 00:17:24,800 --> 00:17:26,960 Speaker 4: when it comes to the transition, but it's also got 382 00:17:27,080 --> 00:17:31,040 Speaker 4: a demand profile that's declining much faster than other regions, 383 00:17:31,240 --> 00:17:34,000 Speaker 4: so in their home markets this makes sense. Beyond that, though, 384 00:17:34,040 --> 00:17:36,560 Speaker 4: there is actually just a cost element of operating in Europe. 385 00:17:36,600 --> 00:17:39,520 Speaker 4: So Shell, for example, disclosed that the cost of extracting 386 00:17:39,520 --> 00:17:41,320 Speaker 4: oil and gas in Europe it's about one hundred and 387 00:17:41,359 --> 00:17:43,840 Speaker 4: forty percent higher compared to the rest of the world. 388 00:17:44,000 --> 00:17:46,520 Speaker 4: So when you're a listed company and you're looking at 389 00:17:46,520 --> 00:17:49,280 Speaker 4: those kind of costs, that just kind of makes sense, right. 390 00:17:49,320 --> 00:17:51,880 Speaker 4: So they're selling those assets in places like the North 391 00:17:51,920 --> 00:17:54,200 Speaker 4: Sea or in the US, and generally it tends to 392 00:17:54,240 --> 00:17:57,240 Speaker 4: be independent buyers in America or in the North Sea 393 00:17:57,280 --> 00:17:58,040 Speaker 4: that are buying those. 394 00:17:58,400 --> 00:18:01,280 Speaker 2: I'm kind of curious now it's, you know, the strategies 395 00:18:01,280 --> 00:18:04,199 Speaker 2: of individual companies. I was actually in Brazil earlier this 396 00:18:04,280 --> 00:18:08,480 Speaker 2: week and presenting some of our content around carbon offsets, 397 00:18:08,720 --> 00:18:11,359 Speaker 2: because obviously Brazil has the potential to be a major 398 00:18:11,359 --> 00:18:14,679 Speaker 2: player as a supplier of offsets because of their natural resources. 399 00:18:14,760 --> 00:18:17,720 Speaker 2: And I had a chart from our team that does 400 00:18:17,760 --> 00:18:19,840 Speaker 2: the work on this of who are the top ten 401 00:18:20,080 --> 00:18:23,080 Speaker 2: buyers are sets we are actually companies retiring offsets, and 402 00:18:23,119 --> 00:18:25,320 Speaker 2: I noticed that in twenty twenty three, I mean, Shell 403 00:18:25,400 --> 00:18:27,640 Speaker 2: has always been near the top of that list, and 404 00:18:27,760 --> 00:18:31,480 Speaker 2: in twenty twenty three they were the number one retirer 405 00:18:31,600 --> 00:18:34,439 Speaker 2: of offsets and buy a huge margin. It was suddenly 406 00:18:34,480 --> 00:18:37,520 Speaker 2: this huge step up. And so is that also part 407 00:18:37,560 --> 00:18:40,600 Speaker 2: of this picture you're painting is that this is partly 408 00:18:40,640 --> 00:18:44,639 Speaker 2: to do with meeting internal targets or voluntary targets. 409 00:18:44,800 --> 00:18:46,600 Speaker 4: Yeah, I mean, I wouldn't want to speculate on their 410 00:18:46,880 --> 00:18:50,359 Speaker 4: internal strategy. But in the market as a whole, offsets 411 00:18:50,400 --> 00:18:52,919 Speaker 4: have come into the mix. We hear the word environmental 412 00:18:52,960 --> 00:18:55,000 Speaker 4: markets on trade floors now right, that was never a 413 00:18:55,040 --> 00:18:57,840 Speaker 4: thing before, you know, five ten years ago, for example, 414 00:18:58,000 --> 00:19:01,360 Speaker 4: we have seen a lot of interest in investments into 415 00:19:01,440 --> 00:19:04,320 Speaker 4: things like forestry projects where they compare them with their 416 00:19:04,320 --> 00:19:06,639 Speaker 4: oil barrels when they're trading them, and then trade that 417 00:19:06,720 --> 00:19:09,680 Speaker 4: as a carbon neutral or a low carbon barrel for example, 418 00:19:09,680 --> 00:19:12,119 Speaker 4: in a sort of a package. There's definitely new business 419 00:19:12,160 --> 00:19:14,200 Speaker 4: streams oil companies that are more than willing to get 420 00:19:14,200 --> 00:19:16,440 Speaker 4: into if there's a good return. This is probably a 421 00:19:16,480 --> 00:19:18,760 Speaker 4: good example of that. Beyond that, then they also have 422 00:19:18,920 --> 00:19:22,320 Speaker 4: their new Energy's division where they've invested in things like renewables, 423 00:19:22,640 --> 00:19:25,840 Speaker 4: utilities even in some senses. So it is a really 424 00:19:25,880 --> 00:19:28,960 Speaker 4: interesting time to see how they're getting innovative around lowering 425 00:19:29,000 --> 00:19:31,440 Speaker 4: the carbon of each of their jewels that they sell. 426 00:19:31,840 --> 00:19:33,480 Speaker 3: That includes offsets. 427 00:19:33,560 --> 00:19:36,200 Speaker 1: Right, So we've talked about where in the world this 428 00:19:36,240 --> 00:19:38,920 Speaker 1: is happening and some of the companies they're doing. And 429 00:19:39,000 --> 00:19:41,359 Speaker 1: I want to know now that we're at this stage 430 00:19:41,440 --> 00:19:43,760 Speaker 1: these assets have been sold off, what are the companies 431 00:19:43,800 --> 00:19:46,560 Speaker 1: actually doing with the cash that they're receiving. 432 00:19:46,840 --> 00:19:49,000 Speaker 4: Yeah, that's a great question, right, So first thing that 433 00:19:49,040 --> 00:19:51,240 Speaker 4: comes into your head is they must be spending it, right, 434 00:19:51,760 --> 00:19:55,440 Speaker 4: not the case necessarily. We have seen a huge increase 435 00:19:55,760 --> 00:19:59,440 Speaker 4: in dividends, paying down net and shareholder buyback. In fact, 436 00:19:59,440 --> 00:20:02,320 Speaker 4: if we were going to look at capital expenditure compared 437 00:20:02,359 --> 00:20:05,320 Speaker 4: to those three things, CAPEX is actually lower over the 438 00:20:05,320 --> 00:20:10,359 Speaker 4: past year compared to shareholder buybacks, debut rey payments, and dividends. 439 00:20:10,359 --> 00:20:13,920 Speaker 4: So oil and gas companies are really becoming more financially astute. 440 00:20:13,920 --> 00:20:15,439 Speaker 3: I suppose it's the term I would use when it 441 00:20:15,480 --> 00:20:17,680 Speaker 3: comes to what they do with their free cash flow. 442 00:20:17,840 --> 00:20:20,520 Speaker 4: The main qualm with the renewable energy story for oil 443 00:20:20,520 --> 00:20:22,600 Speaker 4: and gas companies is that the returns and the cash 444 00:20:22,600 --> 00:20:25,439 Speaker 4: flow are just not high enough compared to their traditional business. 445 00:20:25,480 --> 00:20:27,120 Speaker 4: And I think what they're looking at is where can 446 00:20:27,119 --> 00:20:29,000 Speaker 4: I spend my money. But if I can spend it 447 00:20:29,040 --> 00:20:31,679 Speaker 4: with the return profile that I want, I'm going to 448 00:20:31,680 --> 00:20:32,760 Speaker 4: give back to my shareholders. 449 00:20:33,240 --> 00:20:35,320 Speaker 3: Certainly in the US. 450 00:20:35,760 --> 00:20:40,440 Speaker 2: From my understanding, that trend you've just described, it really 451 00:20:40,560 --> 00:20:44,040 Speaker 2: kind of crystallized around the pandemic. You know, I think 452 00:20:44,080 --> 00:20:47,159 Speaker 2: that before the pandemic, there were all these stories that 453 00:20:47,280 --> 00:20:50,000 Speaker 2: you know, Wall Street was getting concerned investing all these 454 00:20:50,359 --> 00:20:52,760 Speaker 2: shale projects, you know, and it was all focused on 455 00:20:52,800 --> 00:20:55,439 Speaker 2: expand supply, expand supply, but they weren't seeing the returns. 456 00:20:55,440 --> 00:20:57,600 Speaker 2: And then when the price of oil crash, during COVID 457 00:20:57,680 --> 00:21:00,280 Speaker 2: it kind of really was like this moment of like, right, 458 00:21:00,359 --> 00:21:02,800 Speaker 2: we're going to be disciplined from now on. So is 459 00:21:02,840 --> 00:21:06,960 Speaker 2: that also what kind of caused this new financial responsibility? 460 00:21:08,080 --> 00:21:10,560 Speaker 2: Is that how it was globally as well? I mean, 461 00:21:10,600 --> 00:21:12,639 Speaker 2: I'm only familiar with the US story, but is that 462 00:21:12,800 --> 00:21:15,000 Speaker 2: trend how it was for the rest of the world 463 00:21:15,000 --> 00:21:17,880 Speaker 2: as well? It was a pandemic induced. 464 00:21:18,640 --> 00:21:20,359 Speaker 3: Yes, I know, I think is probably the answer. 465 00:21:20,480 --> 00:21:22,800 Speaker 4: So your smaller players in the US shale patch are 466 00:21:22,800 --> 00:21:27,680 Speaker 4: really reliant on bank financing for their production profiles, really 467 00:21:27,920 --> 00:21:30,480 Speaker 4: and they for example, might need a loan, they might 468 00:21:30,560 --> 00:21:32,439 Speaker 4: lock in a hedge with a bank in order to 469 00:21:32,480 --> 00:21:34,080 Speaker 4: be even able to get the financing in. 470 00:21:34,000 --> 00:21:36,440 Speaker 3: The first place. These big IOCs are. 471 00:21:36,800 --> 00:21:39,040 Speaker 4: I mean, they have the balance sheet the same size 472 00:21:39,040 --> 00:21:40,840 Speaker 4: as some countries. They don't have to go to a 473 00:21:40,840 --> 00:21:43,200 Speaker 4: bank to ask for a loan. They can self finance 474 00:21:43,240 --> 00:21:45,840 Speaker 4: many In many cases, this is just them trying to 475 00:21:46,320 --> 00:21:49,400 Speaker 4: be more capitally disciplined after really quite a long time 476 00:21:49,440 --> 00:21:52,840 Speaker 4: of capital indiscipline up until twenty fifteen twenty sixteen, and 477 00:21:52,920 --> 00:21:55,640 Speaker 4: the system got a shock when the shale revolution happened 478 00:21:55,680 --> 00:21:57,880 Speaker 4: in twenty fifteen, and it was no longer a standard 479 00:21:58,000 --> 00:22:00,119 Speaker 4: to have oil above one hundred dollars per barrel, and 480 00:22:00,119 --> 00:22:02,320 Speaker 4: are really plummeted. We had a while there where fifty 481 00:22:02,400 --> 00:22:04,400 Speaker 4: was the new norm. We're aut eighty. Now there's still 482 00:22:04,400 --> 00:22:06,359 Speaker 4: not one hundred and fifteen dollars per barrel, right, So 483 00:22:06,440 --> 00:22:09,720 Speaker 4: they're just becoming more capital discipline and smarter with their money. 484 00:22:09,760 --> 00:22:11,520 Speaker 1: Because is it fair to say that not only are 485 00:22:11,560 --> 00:22:13,760 Speaker 1: they divesting, you know, you said fifty percent of the 486 00:22:13,800 --> 00:22:16,199 Speaker 1: divestments are coming from upstream, but actually this is very 487 00:22:16,280 --> 00:22:19,439 Speaker 1: much in line with also a wind down of just 488 00:22:19,520 --> 00:22:22,400 Speaker 1: investing in upstream that we're talking about right now. 489 00:22:22,520 --> 00:22:26,159 Speaker 4: Yeah, there's definitely lower volumes of dollars going into the 490 00:22:26,240 --> 00:22:28,960 Speaker 4: upstream for these nine companies that we have listed in 491 00:22:29,000 --> 00:22:31,640 Speaker 4: this report. For example, I think in twenty fifteen, their 492 00:22:31,720 --> 00:22:34,600 Speaker 4: upstream investment was about one hundred and sixty billion dollars 493 00:22:34,640 --> 00:22:37,199 Speaker 4: in twenty fifteen, and it's now about ninety billion dollars. 494 00:22:37,280 --> 00:22:39,800 Speaker 4: But again, bringing back that sort of efficiency in the 495 00:22:39,880 --> 00:22:43,879 Speaker 4: system that doesn't necessarily translate into a much lower volume 496 00:22:43,920 --> 00:22:48,200 Speaker 4: of actual oil being invested into. They're just smarter at 497 00:22:48,240 --> 00:22:52,000 Speaker 4: investing and they've dropped the costs of their operations significantly 498 00:22:52,480 --> 00:22:53,000 Speaker 4: since then. 499 00:22:53,600 --> 00:22:56,440 Speaker 1: We're here to talk about divestment, but I can't help 500 00:22:56,560 --> 00:22:59,720 Speaker 1: but actually talk a little bit for a moment about 501 00:22:59,720 --> 00:23:02,359 Speaker 1: some of the things that these companies actually are doing. 502 00:23:02,560 --> 00:23:05,200 Speaker 1: So we're talking about the IOCs. Not only have they 503 00:23:05,240 --> 00:23:08,359 Speaker 1: been divesting from some of their low carbon assets, but 504 00:23:08,400 --> 00:23:10,639 Speaker 1: we have seen a scale of investment actually go up 505 00:23:10,680 --> 00:23:13,040 Speaker 1: in that space. Can you talk a little bit about that. 506 00:23:13,240 --> 00:23:16,480 Speaker 1: Basically that the divestment is not necessarily aligned with where 507 00:23:16,520 --> 00:23:20,359 Speaker 1: they're investing internally, They're maybe just moving things around or 508 00:23:20,359 --> 00:23:23,720 Speaker 1: folding them into new assets. And what does that trend 509 00:23:23,800 --> 00:23:26,080 Speaker 1: look like? And I know that that ranges depending upon 510 00:23:26,119 --> 00:23:27,280 Speaker 1: where in the world you are. 511 00:23:27,600 --> 00:23:28,840 Speaker 3: Yeah, it's an interesting question. 512 00:23:28,880 --> 00:23:31,520 Speaker 4: What are they're spending their money on and what they're 513 00:23:31,560 --> 00:23:33,080 Speaker 4: spending their money on, what does it tell us about 514 00:23:33,080 --> 00:23:35,840 Speaker 4: their future? And for a few years before twenty twenty, 515 00:23:35,880 --> 00:23:38,119 Speaker 4: before the pandemic, basically we saw an awful lot of 516 00:23:38,160 --> 00:23:41,399 Speaker 4: investment into green electrons or low carbon electrons. Everybody wanted 517 00:23:41,440 --> 00:23:44,280 Speaker 4: to be utility solar wind And since then we've seen 518 00:23:44,280 --> 00:23:47,600 Speaker 4: a big change in the strategy of IOCs and where 519 00:23:47,600 --> 00:23:49,439 Speaker 4: they're spending their money, and it's turned into what we 520 00:23:49,480 --> 00:23:53,200 Speaker 4: call the sort of clean molecule becoming the dominant focus area. 521 00:23:53,320 --> 00:23:56,840 Speaker 4: That is bio and renewable fuels for example, like ethanol, 522 00:23:56,880 --> 00:24:00,000 Speaker 4: sustainable aviation fuel, renewable diesel, and it's things like high 523 00:24:00,040 --> 00:24:03,080 Speaker 4: drogen and carbon capture in storage. These are things that 524 00:24:03,240 --> 00:24:05,720 Speaker 4: can clean up the molecules they produce, or can clean 525 00:24:05,800 --> 00:24:08,360 Speaker 4: up the traditional business of an oil and gas company. 526 00:24:08,440 --> 00:24:11,080 Speaker 4: So that could be for example, green hydrogen going into 527 00:24:11,080 --> 00:24:13,680 Speaker 4: your refinery so that the emissions from that asset drop, 528 00:24:13,840 --> 00:24:16,320 Speaker 4: or it could be renewable power being purchased into a 529 00:24:16,359 --> 00:24:19,399 Speaker 4: refinery or to power an offshore oil platform, or it 530 00:24:19,400 --> 00:24:21,880 Speaker 4: could be carbon capture in order to capture the emissions 531 00:24:21,880 --> 00:24:24,200 Speaker 4: from any of these things and again lower the carbon 532 00:24:24,280 --> 00:24:27,160 Speaker 4: profile of what is essentially an oil product. So they're 533 00:24:27,280 --> 00:24:30,240 Speaker 4: keeping some of their traditional the more comfortable assets for them, 534 00:24:30,320 --> 00:24:32,200 Speaker 4: but they're adapting as to how they lower the carbon 535 00:24:32,200 --> 00:24:34,919 Speaker 4: footprint for them. And that's predominantly because they're comfortable with 536 00:24:34,920 --> 00:24:37,919 Speaker 4: that the technology and it's a higher return for them generally. 537 00:24:38,119 --> 00:24:39,080 Speaker 3: It's really interesting. 538 00:24:39,160 --> 00:24:41,040 Speaker 2: I mean, I want to just return to this question 539 00:24:41,119 --> 00:24:43,240 Speaker 2: of returns because as when you were talking about it before, 540 00:24:43,280 --> 00:24:46,639 Speaker 2: and I was just thinking I heard an economist talking 541 00:24:46,880 --> 00:24:51,240 Speaker 2: about the power sector and wind assets and the whole 542 00:24:51,280 --> 00:24:54,800 Speaker 2: situation on the war in Ukraine in Europe where the 543 00:24:55,119 --> 00:24:57,880 Speaker 2: gas price went super high. Therefore the power price went 544 00:24:57,960 --> 00:25:00,000 Speaker 2: super high, and if you were owning a window or 545 00:25:00,040 --> 00:25:02,399 Speaker 2: solo asset, then that would mean a lot of profit. 546 00:25:02,480 --> 00:25:05,000 Speaker 2: And then I don't know because I've been in the US, 547 00:25:05,080 --> 00:25:07,520 Speaker 2: but you know he was talking about then the government 548 00:25:07,560 --> 00:25:09,840 Speaker 2: came in and was like, win full taxes on all 549 00:25:09,880 --> 00:25:13,080 Speaker 2: of this. You can't just profit off insane the high 550 00:25:13,119 --> 00:25:16,200 Speaker 2: commodity prices. Am I making a false correlation? It seems 551 00:25:16,240 --> 00:25:19,720 Speaker 2: like since then that's where we've seen maybe less excitement 552 00:25:19,800 --> 00:25:22,760 Speaker 2: in clean electrons from the oil and gas sector. And 553 00:25:23,080 --> 00:25:26,080 Speaker 2: it's because they're used to playing in global markets where 554 00:25:26,119 --> 00:25:28,480 Speaker 2: no one's going to come along and take away your money. 555 00:25:28,520 --> 00:25:31,320 Speaker 2: If you've profited from a spike in prices, like do 556 00:25:31,320 --> 00:25:33,640 Speaker 2: you think that's what gave them the ick a little 557 00:25:33,640 --> 00:25:34,919 Speaker 2: bit when it came to electricity. 558 00:25:35,560 --> 00:25:36,199 Speaker 3: I don't think so. 559 00:25:36,320 --> 00:25:38,680 Speaker 4: I think they're you know, big strong boys and girls, 560 00:25:38,720 --> 00:25:40,720 Speaker 4: and the oil companies. I don't think they're necessarily worried 561 00:25:40,720 --> 00:25:43,640 Speaker 4: about that long term. I think really maybe what turned 562 00:25:43,680 --> 00:25:46,159 Speaker 4: it a little bit was it became okay again to 563 00:25:46,280 --> 00:25:49,040 Speaker 4: invest in an oil and gas asset after twenty twenty two, 564 00:25:49,240 --> 00:25:51,119 Speaker 4: when we saw prices go through the roof and we 565 00:25:51,160 --> 00:25:54,600 Speaker 4: saw inflation follow diesel. Everything that gets your parcel to 566 00:25:54,640 --> 00:25:57,160 Speaker 4: your door, for example, your pocket when you're going out 567 00:25:57,160 --> 00:25:59,119 Speaker 4: to drop your kids to school is hurt by the 568 00:25:59,160 --> 00:26:02,920 Speaker 4: gasoline prices. It then became okay to bring more oil 569 00:26:02,960 --> 00:26:05,120 Speaker 4: onto the market and to invest further. So we saw 570 00:26:05,160 --> 00:26:08,040 Speaker 4: some of the IOCs, for example, just their strategy so 571 00:26:08,080 --> 00:26:10,439 Speaker 4: that they shift away from producing oil and gas in 572 00:26:10,480 --> 00:26:13,119 Speaker 4: a slower fashion than they had previously stated that they would, 573 00:26:13,160 --> 00:26:15,600 Speaker 4: and they got a lot of noise for that as well. Right, 574 00:26:15,600 --> 00:26:19,240 Speaker 4: But it became more okay to bring oil onto the market. 575 00:26:19,240 --> 00:26:21,960 Speaker 4: And that's partially because when we think of sanctions, and 576 00:26:22,000 --> 00:26:25,040 Speaker 4: we think of international wars and the changing landscape in 577 00:26:25,040 --> 00:26:26,480 Speaker 4: the last two and a half years, a lot of 578 00:26:26,480 --> 00:26:29,520 Speaker 4: the oil that was in the world is no longer 579 00:26:29,600 --> 00:26:32,480 Speaker 4: able to shift into these markets, particularly where the IOCs 580 00:26:32,480 --> 00:26:34,840 Speaker 4: are headquartered, like North America and Europe. 581 00:26:35,000 --> 00:26:38,360 Speaker 2: I suppose, I mean where I was really kind of targeting. 582 00:26:38,400 --> 00:26:41,280 Speaker 2: My question was not so much them shifting away from 583 00:26:41,320 --> 00:26:44,439 Speaker 2: clean electrons to oil, but within the Green part of 584 00:26:44,480 --> 00:26:48,120 Speaker 2: their strategy the shift from electrons to molecules where they're 585 00:26:48,160 --> 00:26:53,160 Speaker 2: not utilities and therefore are less subjects to boring returns. 586 00:26:53,440 --> 00:26:55,879 Speaker 4: Right Yeah, But there's also a lot more overlap and 587 00:26:55,920 --> 00:26:56,639 Speaker 4: the technology. 588 00:26:56,680 --> 00:26:58,720 Speaker 3: I think that's one of the core elements of it. 589 00:26:58,760 --> 00:27:01,520 Speaker 4: If we think renewable fuel, that's using refineries for the 590 00:27:01,520 --> 00:27:04,639 Speaker 4: most part, right to make a liquid energy duel that 591 00:27:04,680 --> 00:27:07,000 Speaker 4: goes into something like an airplane. So they're happy and 592 00:27:07,000 --> 00:27:09,359 Speaker 4: comfortable with it, and they get government pressure. We've had 593 00:27:09,359 --> 00:27:12,280 Speaker 4: the Inflation Reduction Act which makes that more profitable. Again, 594 00:27:12,359 --> 00:27:14,159 Speaker 4: we've had the Green Deal in Europe which makes a 595 00:27:14,200 --> 00:27:17,080 Speaker 4: lot of that mandated. So the support change from the 596 00:27:17,080 --> 00:27:19,439 Speaker 4: policy site since then has really moved in favor of 597 00:27:19,480 --> 00:27:20,040 Speaker 4: that as well. 598 00:27:20,119 --> 00:27:22,240 Speaker 2: Right, So it's helped them do the thing that they're 599 00:27:22,240 --> 00:27:25,680 Speaker 2: good at, correct, and they're more likely to get good 600 00:27:25,720 --> 00:27:28,960 Speaker 2: returns doing the thing they're good at rather than just 601 00:27:29,000 --> 00:27:31,480 Speaker 2: being another investor in with SOLA. 602 00:27:31,520 --> 00:27:34,800 Speaker 4: And they're really well placed. They have the infrastructure, they 603 00:27:34,800 --> 00:27:36,840 Speaker 4: have the smarts, they've got the money, so they can 604 00:27:36,880 --> 00:27:38,679 Speaker 4: scale something like a startup could never do. 605 00:27:38,880 --> 00:27:41,800 Speaker 1: When it comes to divestment, broadly speaking, do you expect 606 00:27:41,880 --> 00:27:43,080 Speaker 1: this trend to continue. 607 00:27:43,359 --> 00:27:47,240 Speaker 4: Yeah, it's a normal, normal part of the function of 608 00:27:47,240 --> 00:27:50,320 Speaker 4: oil and gas companies reassessing their portfolio, seeing what works, 609 00:27:50,359 --> 00:27:53,320 Speaker 4: seeing what doesn't work, seeing where they're competitive, have their 610 00:27:53,359 --> 00:27:56,199 Speaker 4: competitors in a certain market become better, and are they 611 00:27:56,359 --> 00:27:56,880 Speaker 4: losing out? 612 00:27:57,160 --> 00:27:57,919 Speaker 3: So this will continue. 613 00:27:57,920 --> 00:28:00,639 Speaker 4: You'll see flipping of assets in any industry, the speed 614 00:28:00,640 --> 00:28:03,000 Speaker 4: of which obviously changes. And you know, in the oil market, 615 00:28:03,520 --> 00:28:05,880 Speaker 4: oil prices make it a quiet year for the investment. 616 00:28:06,080 --> 00:28:08,320 Speaker 4: Low oil price makes it a sort of exciting year 617 00:28:08,320 --> 00:28:08,880 Speaker 4: for the devestment. 618 00:28:09,280 --> 00:28:11,160 Speaker 1: Well, because I have often seen these kind of top 619 00:28:11,280 --> 00:28:14,600 Speaker 1: ten heaviest emitters lists and they name out companies that 620 00:28:14,640 --> 00:28:18,960 Speaker 1: are associated with these really high carbon emissions. And ultimately, 621 00:28:19,320 --> 00:28:22,919 Speaker 1: as divestment continues, assuming that a good amount of it 622 00:28:22,960 --> 00:28:25,679 Speaker 1: will continue to be in these high carbon assets, do 623 00:28:25,720 --> 00:28:27,840 Speaker 1: we ultimately think this will just make for a much 624 00:28:27,880 --> 00:28:29,280 Speaker 1: more fragmented market. 625 00:28:29,600 --> 00:28:31,919 Speaker 4: There's a huge potential for that, Yeah, particularly if you 626 00:28:31,960 --> 00:28:34,399 Speaker 4: think of high emitting assets. And we've seen it in 627 00:28:34,440 --> 00:28:39,280 Speaker 4: the past, IOCs selling high emitting assets to cowboys, and 628 00:28:39,480 --> 00:28:42,080 Speaker 4: you know the difficulty with that is, yes, the book 629 00:28:42,080 --> 00:28:45,240 Speaker 4: of the IOC looks cleaner, but the world is in 630 00:28:45,360 --> 00:28:47,360 Speaker 4: any better or the sector as a whole is no 631 00:28:47,440 --> 00:28:50,920 Speaker 4: better off. It's just moved into another hand with less 632 00:28:51,120 --> 00:28:54,200 Speaker 4: less exciting or less ambitious targets to decarbonize, and less 633 00:28:54,200 --> 00:28:57,080 Speaker 4: capability to decarbonize. I think really the IOCs have the 634 00:28:57,160 --> 00:29:00,560 Speaker 4: most capable technologies to lower the carbon of any of 635 00:29:00,600 --> 00:29:01,360 Speaker 4: these things. 636 00:29:01,120 --> 00:29:02,720 Speaker 3: That they're trying to sell, any of the jewels. 637 00:29:02,920 --> 00:29:05,080 Speaker 2: But do you think then? I mean, and you gave 638 00:29:05,120 --> 00:29:07,920 Speaker 2: a really great presentation at our Barrel of Tomorrow in 639 00:29:08,000 --> 00:29:12,840 Speaker 2: Houston about this very subject of a world where potentially 640 00:29:13,120 --> 00:29:16,120 Speaker 2: oil is differentiated not just on price, but on how 641 00:29:16,240 --> 00:29:16,920 Speaker 2: green it is. 642 00:29:17,080 --> 00:29:17,840 Speaker 3: Correct me if I'm wrong. 643 00:29:17,880 --> 00:29:21,120 Speaker 2: That was what I took away from your thought, and 644 00:29:21,160 --> 00:29:23,719 Speaker 2: that seems to be, you know, from a global perspective, 645 00:29:24,000 --> 00:29:27,880 Speaker 2: a better trend than divestment. So what has to happen 646 00:29:28,080 --> 00:29:31,560 Speaker 2: for them to have the right incentives to do that? 647 00:29:31,680 --> 00:29:34,120 Speaker 2: And as you say, they're probably the best positioned people 648 00:29:34,160 --> 00:29:34,640 Speaker 2: to do that. 649 00:29:35,000 --> 00:29:37,400 Speaker 1: So yeah, how do we change this top ten list 650 00:29:37,400 --> 00:29:42,840 Speaker 1: to actually reflect true decarbonization as opposed to just smaller emitters. 651 00:29:43,240 --> 00:29:44,600 Speaker 3: Yeah, I mean that's a tough question. 652 00:29:44,640 --> 00:29:46,920 Speaker 4: I think low carbon, low cost, I think was the 653 00:29:46,960 --> 00:29:49,720 Speaker 4: goal I was talking about in Houston with you, Tom 654 00:29:49,840 --> 00:29:51,920 Speaker 4: It's tough. I mean, you're seeing different parts of the 655 00:29:51,960 --> 00:29:54,760 Speaker 4: world start to enact policies that are encouraging this. Whether 656 00:29:54,800 --> 00:29:58,200 Speaker 4: it's like the carbon border adjustment mechanism in Europe, for example, 657 00:29:58,360 --> 00:30:01,520 Speaker 4: rewarding a low carbon that product would be anything but 658 00:30:01,600 --> 00:30:04,440 Speaker 4: oil as a product, right. And you're also seeing certain 659 00:30:04,520 --> 00:30:07,880 Speaker 4: sectors bring in carbon prices or some form of carbon 660 00:30:07,920 --> 00:30:11,160 Speaker 4: mechanism in order to incentivize the lower carbon duel of 661 00:30:11,280 --> 00:30:13,600 Speaker 4: energy going into your car, for example. So there's a 662 00:30:13,600 --> 00:30:16,640 Speaker 4: bunch of policies that are starting to really take grip 663 00:30:16,720 --> 00:30:18,720 Speaker 4: now and grow and become mature. 664 00:30:18,480 --> 00:30:20,000 Speaker 3: That are starting to have an impact. 665 00:30:20,120 --> 00:30:23,280 Speaker 4: That could be the eu ETS, the European Carbon trading 666 00:30:23,320 --> 00:30:26,480 Speaker 4: system being applied to shipping, and now it makes things 667 00:30:26,640 --> 00:30:30,720 Speaker 4: like methanol competitive or renewable diesel competitive with fuel oil, 668 00:30:30,760 --> 00:30:33,440 Speaker 4: which is traditionally one of the cheapest oil products. So yeah, 669 00:30:33,480 --> 00:30:37,120 Speaker 4: they're working. The market's so fragmented though that unless there's 670 00:30:37,160 --> 00:30:39,440 Speaker 4: like a global carbon market, it's going to be a 671 00:30:39,520 --> 00:30:43,920 Speaker 4: slow and piecemeal sort of development of this competitiveness of 672 00:30:44,000 --> 00:30:45,040 Speaker 4: cost different industries. 673 00:30:45,520 --> 00:30:48,160 Speaker 1: And here we are talking about global carbon markets as 674 00:30:48,240 --> 00:30:51,040 Speaker 1: an idea yet again, which always seems to rear its 675 00:30:51,080 --> 00:30:52,800 Speaker 1: head when we get to cops, so we'll see if 676 00:30:52,840 --> 00:30:55,080 Speaker 1: that comes up again in November. David, thank you so 677 00:30:55,160 --> 00:30:57,360 Speaker 1: much for joining Tom and I today and sharing your 678 00:30:57,440 --> 00:30:58,920 Speaker 1: thoughts on oil and gas divestment. 679 00:30:59,000 --> 00:30:59,920 Speaker 3: Thanks guys, thanks for chating. 680 00:31:09,280 --> 00:31:12,400 Speaker 1: Today's episode of Switched On was produced by Cam Gray 681 00:31:12,600 --> 00:31:16,240 Speaker 1: with production assistance from Kamala Shelling. Bloomberg NIF is a 682 00:31:16,320 --> 00:31:19,400 Speaker 1: service provided by Bloomberg Finance LP and its affiliates. This 683 00:31:19,520 --> 00:31:22,200 Speaker 1: recording does not constitute, nor should it be construed, as 684 00:31:22,240 --> 00:31:26,000 Speaker 1: investment in vice, investment recommendations, or a recommendation as to 685 00:31:26,040 --> 00:31:28,880 Speaker 1: an investment or other strategy. Bloomberg ANIF should not be 686 00:31:28,960 --> 00:31:32,680 Speaker 1: considered as information sufficient upon which to base an investment decision. 687 00:31:32,840 --> 00:31:35,800 Speaker 1: Neither Bloomberg Finance Lp nor any of its affiliates makes 688 00:31:35,840 --> 00:31:39,560 Speaker 1: any representation or warranty as to the accuracy or completeness 689 00:31:39,560 --> 00:31:42,560 Speaker 1: of the information contained in this recording, and any liability 690 00:31:42,600 --> 00:31:45,280 Speaker 1: as a result of this recording is expressly disclaimed.