Forget AI — this week, the corporate world is focused on oil

Two shareholder votes this week could reshape the oil industry.

Hess shareholders vote this afternoon on the company’s $53 billion sale to Chevron, and with a few hours to go, it’s still a nailbiter. Uncertainty over the fate of Hess’ stake in a South American oilfield has thrown what is generally a rubber-stamp process into chaos and forced John Hess to hit the phones in a last-minute effort to secure approval for his legacy-defining deal.

An influential shareholder adviser, ISS, is recommending that Hess shareholders abstain and force the company to reschedule. Hess shares are trading at about $10 below Chevron’s offer, a wide gap this near to a potential deal closing.

Wednesday brings Exxon’s annual meeting, where a handful of investors including California’s state employee pension and Norway’s giant oil fund have said they’ll oppose some directors. They’ll square off against red-state treasurers in a vote that has turned into something of a proxy for the rise and fall of the ESG movement.

Exxon is on an epic corporate winning streak.

It has become the unlikeliest of faces of an unlikely shift in prevailing business winds, suing two of its own shareholders who pressed a ballot measure urging the company to speed up its carbon-emissions reductions. “That Exxon — Exxon — feels comfortable throwing its corporate might against a couple of low-budget activists says a lot about how quickly the political weather has changed” around ESG, I wrote at the time.

When the shareholders dropped their proposal and promised not to submit it again, Exxon moved ahead with its lawsuit anyway, doing away with any pretense that this was a narrow governance battle and not a corporate crusade. Last week a Fort Worth judge took the unusual step of allowing the case to continue, calling Exxon’s behavior a “rational response to entities categorically opposed to Big Oil” and noting Texas’ own interest in the matter.

Over in ring two, Exxon has successfully mucked with its chief competitor, Chevron. Exxon and Hess are partners in an offshore oilfield in Guyana, a generational find thought to hold twice as much oil as the Gulf of Mexico. Exxon says it has the right of first refusal on Hess’s 30% stake and has launched proceedings in international court that could stretch on for more than a year. Chevron is confident it will win, but the project’s operating agreement is under lock and key. Chevron could walk away for free if it ultimately loses, and the uncertainty has unnerved Hess shareholders to the point that their approval at a vote scheduled for later today is iffy.

In ring three, Exxon’s own big takeover, a $60 billion deal for Pioneer, got approved by the most merger-hostile regulators in a generation and closed earlier this month. And the one concession the Federal Trade Commission did insist on is a gift to CEO Darren Woods: His former counterpart at Pioneer can’t serve on the company’s board of directors while regulators pursue price-fixing allegations that may yet turn criminal. You know what CEOs don’t like? Executives of the company they just bought sitting in their boardroom, watching while they take pruning shears to it.

Ring four — this is a big circus — concerns a vote of Exxon’s own investors, on Wednesday. After pension funds in California, Illinois, New York City, and Norway said they would vote against Woods and other board members because of the Texas lawsuit, the political scales appear to have tipped back in Exxon’s favor. Several red states have come out in support, and bipartisan legislators in deep blue Illinois’ introduced a bill telling its treasurer to prioritize investment returns over politics.

The tide of ESG momentum has clearly ebbed in recent years. In 2021, a tiny hedge fund, seizing on shareholder discontent with Exxon’s slow embrace of renewables, won three seats on its board. That may end up being a high-water mark of the movement, and Exxon’s counterstrike lawsuit now a punctuation point.

“Decades of shareholder rights are under threat from a lawsuit filed by the leaders of a powerful U.S. corporation, designed to punish two small groups that dared to speak truth to power,” executives at the California Public Employees’ Retirement System wrote, explaining their plan to vote against Exxon’s entire board, including Woods. “If successful, the legal action could diminish the role—and the rights—of every investor in improving a company’s bottom line.”

• Dueling opeds today from Calpers’ chief and Exxon’s Woods.
• Exxon’s tune on Guyana changed quickly. — WSJ