Monsanto is in Trouble Again and Shell Executives Are Leaving
The good news is the Europeans are figuring out how to make circular plastics a reality
Oil and Gas News
Shell Executives Exit the Business
Executives leading key expansion areas for Shell’s green expansion and eventual pivot towards divesting income generation from oil and gas have left the organization according to the Financial Post. Shell has made promises for much of 2019 and 2020 to drastically change how it does business and generate cash flow from new business verticals due to pressure from shareholders and the plan is expected to be unveiled in February 2021. Anjli Raval and Leslie Hook reported that:
Marc van Gerven, who headed the solar, storage and on-shore wind businesses at Shell, Eric Bradley, who worked in Shell’s distributed energy division, and Katherine Dixon, a leader in its energy transition strategy team, have all left the company in recent weeks.
Dorine Bosman, Shell’s vice-president for offshore wind, is also due to leave the company. Several other top executives in the clean energy part of the business also plan to exit in the coming months, two of the people said.
Dorine Bosman, Shell’s vice-president for offshore wind, is also due to leave the company. Several other top executives in the clean energy part of the business also plan to exit in the coming months, two of the people said.
The departure of executives attempting to execute the vision that the current CEO, Ben van Beurden, has laid out for the company is troubling. It will be interesting to see how much sway shareholders will have in the coming year if they feel that the plan transition plan in February does not accurately reflect their desires and values. It may be that the remaining executives did not feel comfortable investing so much capital into a long term bet on how the energy economy will change and this may also reflect some of the desires of the shareholders due to the recent dividend increase and slight stock price bump at the end of October on the announcement. Everyone talks a big game until its time to pay.
Exxon Getting Pummeled by Shareholders
In a somewhat related story my LinkedIn feed is filled with former ExxonMobil and surviving ExxonMobil employees offering up their network for those that have been laid off.
ExxonMobil has been under intense pressure by shareholders to cut costs and pivot away from their traditional sources of revenue, specifically oil and gas, and into more sustainable modes of energy generation of the future. The New York Times reported that:
Exxon is under growing pressure from investors. D.E. Shaw, a longtime shareholder that recently increased its stake in Exxon, is demanding that the company cut costs and improve its environmental record, according to a person briefed on the matter. Another activist investor, Engine No. 1, is pushing for similar changes in an effort backed by the California State Teachers Retirement System and the Church of England. And on Wednesday, the New York State comptroller, Thomas P. DiNapoli, said the state’s $226 billion pension fund would sell shares in oil and gas companies that did not move fast enough to reduce emissions.
Exxon is somewhat unique amongst the large integrated oil companies in that they have decided to just keep producing oil and gas and not invest as heavily as their competitors into a clean energy future. Finnish oil company Neste has invested into sustainable business such as biodiesel and chemical recycling of plastics and Total plans to invest about $3 billion per year into alternative and sustainable revenue generation methods including biofuels and chemical recycling of plastics.
My Analysis
It is tough for these companies to transition out of what they have known for their entire existence. Would you expect Ford to stop making cars and start making trains? Maybe if Ford had as much profit as the oil companies we would. I think the oil companies that invest heavily now into developing their future revenue streams will be well positioned to take advantage of the future technologies that will come to dominate the 21st century.
The 20th century in large part was a golden age for oil and chemicals. In the 21st century chemicals and polymers will still be important, but oil as a fossil fuel source will be minimized. Dmitri Mendeleev was quoted as saying burning petroleum as fuel “would be akin to firing up a kitchen stove with bank notes.” The amount of things we can produce from petroleum through chemistry is astonishing and to simply use the majority of this natural resource as a fuel will be mind boggling when my kids are learning to drive (or maybe they will not learn?).
I think divesting from oil stocks is a smart move for pension funds primarily because there is so much uncertainty about the speed of the transition from fossil fuels to electric vehicles. I doubt hydrogen fuel cell cars (oil industry likes to talk about hydrogen as an energy source of the future) will happen either and on-site generation of hydrogen for things like hydrogenation will stay probably stay the same. There are more pure wind power and solar power investments for pension funds to buy that will likely realize the full potential of an energy transition or get acquired for a hefty premium once companies like Exxon realize they are late to the renewables dance. Oil companies on the other hand at best will likely see alternative investment gains offset by needing to maintain infrastructure dedicated to making fuel from oil and combating low oil prices as we progress towards needing oil less and less. Once we don’t need to actually use oil to make fuel those that have not invested in the transition will probably be gone anyway.
Business Distillates
Executive Moves
Rudolf Staudigl, President & CEO of the Executive Board of Wacker Chemie AG will step down May 12, 2021 and will be succeeded by Christian Hartel, a Wacker Chemie board member since 2015. Wacker Chemie AG has gone through a year of significant changes including layoffs, selling off their silicon wafer business, and now a new CEO.
Randy Dearth, former CEO of GCP Applied Technologies (my current employer), is joining SK Capital as a senior director. Randy Dearth held previous executive roles at Calgon Carbon, Covestro, and Lanxess. SK Capital has been active in the acquisition of SI Group and Nucera in the last few years and most recently Venator (Huntsman’s Pigments and Additives division).
Samsung Biologics has promoted John Rim as their new CEO in and effort to boost growth into the growing biopharma space. Rim has former experience at Genetech and Roche and previously led Samsung Biologic’s No. 3 plant. Biological pharmaceuticals may be the next big technology that changes the cost of drug synthesis.
Total Yogurt Pots (I think pots = those little Yoplait cups) and More
I just wrote about Total’s investment into alternative oil revenue products earlier in this newsletter and on Dec. 7th they announced feasibility of incorporating chemically recycled polystyrene into yogurt cups with Intraplás and Yoplait. Food contact polymers must meet stringent requirements on barrier properties and cleanliness from various world wide regulatory agencies and chemically recycled polystyrene appears to be an easy technology to demonstrate feasibility.
To add to the Total circular plastics (pun fully intended) lineup they have also demonstrated producing recycled polypropylene for packaging materials with 37% chemically recycled content with the goal of getting to 50% with PACCOR. Currently the containers are for non-food applications, but I bet they are going after that too. It seems circular take out containers containers are close to commercialization and I hope to be using them soon.
Circular ABS with INEOS Styrolution and Indaver
Acrylonitrile butadiene styrene (ABS) is polymer utilizing three distinct monomer streams to make a widely used engineering thermoplastic. ABS is used in a whole suite of products such as power tools, refrigeration, electronics, pipes, and in 3D printing to name a few. INEOS Styrolution and Indaver can likely get the styrene monomer stream from pyrolysis of polystyrene, but I am not fully sure on how they plan to get the butadiene from a circular route. The acrylonitrile should be somewhat straight forward if they have a circular route to propylene, but they will not have a circular path to ammonia as it will likely still come from the Haber-Bosch process. The announcement of trying to go circular with ABS is one of the more ambitious goals I’ve seen lately (helps to have funding from the EU) and could mean that the big six plastics are well under way to being completely circularized.
The joint project between the two companies is important enough to get it’s own website. We can follow the progress of the project here.
BASF/Monsato Pushing Dicambe and GMOs Despite Federal Pushback
Jonathan Hettinger with the Midwest Center for Investigative Journalism has an excellent story that should be read in full. Seriously, if you’ve made it this far into this newsletter this is the treasure at the end of the rainbow. If you don’t have time continue on.
Essentially, Monsanto knew it would have to stop producing Roundup or glyphosphate this year and has known for years that it would probably have to stop at some point with Roundup resistant weeds becoming an issue in the early 2000s. Monsanto’s next blockbuster in the pipeline was to have dicambe resistant soybeans and cotton plants to go with spraying dicambe, a very effective herbicide that was not widely used because of its propensity to “drift” once sprayed and move off target. Moving off target for an herbicide is bad, especially if your neighbor farmer is not using dicambe resistant crops.
The drift of dicambe has resulted in a massive amount of lawsuits from farmers with dying crops and Monsanto and BASF knew this could happen. Eventually, Monsanto and BASF thought that buying their dicambe resistant crops could be marketed as “protection from your neighbor.” In theory I think this could be considered “anti-competitive” practices, but Monsanto and BASFs competition are also making and using dicambe.
This problem is just persisting and it will take time for federal courts to further restrict the use of dicambe as they have done already, but this decision was overturned by the EPA. Perhaps the Biden administration’s EPA can take a focused look at dicambe and figure out how to minimize the negative impacts or completely ban its use.
My Analysis
I do not see herbicides and pesticides as a viable AgChem strategy going into the future because even in the best case scenarios nature will evolve to become resistant. This is similar to bacteria becoming resistant to antibiotics, but we are talking about weeds and soybeans and not microbes that can kill people. Shareholders of these companies should decide if they really want to continue to support these businesses.
If I was a stock analyst I would come to a conclusion that at best Monsanto is a liability concern with respect to lawsuits despite being able to make large amounts of money selling herbicide resistant crops and herbicide. In a worst case scenario Monsanto could become a liability that would threaten the larger organization through lawsuits because it seems like the executives and scientists know what they are doing. In fact, the executives are going against scientist recommendations of using herbicides like dicambe, and are taking the necessary steps to try and mitigate liability.
The whole business model of selling herbicides and herbicide resistant plants needs to be re-evaluated if every new release causes lawsuits and increases a company’s liability. Activist investors should get involved to try and change these companies, but perhaps these companies are too big for billionaire investors like Bill Ackman and Carl Icahn.
An AgChem company that can come up with a new model perhaps based on soil health, drought resistant crops, and CO2 fixation could become the company to displace this old business model and do well by doing good. If oil companies can figure out a transition plan then so can AgChem.
Do Well by Doing Good
Tony
The views here are my own and do not represent the views of my current employer, nor should they be considered investment advice.