The world's largest oil companies are adopting a new buzzword to assure investors that they are committed to continued oil drilling: pragmatism. Over the past year, this nondescript term has appeared repeatedly on earnings conference calls, a substantial increase compared to previous years.

While the use of the word "pragmatic" by CEOs does not necessarily indicate a plan to increase oil drilling, it has become a go-to term for oil producers to convey their intention of generating profits from fossil fuels amidst the growing focus on green energy and pressure to transition away from traditional sources.

Surprisingly, this push for pragmatism is proving effective for major oil companies, particularly those in Europe, when it comes to their stock prices. In 2023, European oil stocks outperformed their US competitors for the first time in five years. Among the prominent oil companies included in this trend are Exxon Mobil and Chevron in the US, and BP, Shell, and TotalEnergies in Europe.

Pragmatism serves as an imperfect yet valuable tool for Big Oil, helping them navigate the complexities and competing interests they face. On one hand, they must address shareholders' concerns, while on the other, they contend with mounting pressure from regulators to reduce carbon emissions within the industry.

Oil companies also strategically employ the term "pragmatic" to differentiate themselves from climate activists who advocate for significant changes in energy production methods. For instance, it would be unexpected to hear an oil CEO describe a "pragmatic" approach to scaling down gasoline production as electric vehicles gain popularity.

BP CEO Murray Auchincloss echoed this sentiment on a recent earnings call, stating, "We will continue to be pragmatic in our approach to how we navigate this energy transition. Yes, we want to help scale lower carbon energy value chains and position ourselves to profit from them, but we must remain flexible, adjusting in line with changing demands and societal needs." Notably, BP's stock experienced a 6.3% increase on that day.

It is evident that pragmatism has become crucial in the strategy of Big Oil as they strive to strike a balance between shareholder expectations and the need to address environmental concerns. By embracing pragmatism, these companies aim to reassure investors that they can adapt to evolving demands and retain profitability in an ever-changing energy landscape.

The Pragmatic Approach of Oil Companies in Addressing Climate Change

On Wednesday, TotalEnergies CEO Patrick Pouyanné described the company's strategy of investing in oil projects that should produce better cash flow than its existing projects as "pragmatic." Pouyanné has previously emphasized the importance of carbon capture as a way to combat climate change, despite criticism from environmentalists who see it as a mere cover-up for oil pollution.

Shell's Transition Strategy: A Pragmatic Approach

Shell also frequently turns to the word "pragmatic" when describing its transition strategy. During the company's investor day last year, the term was mentioned six times. Shell CEO Wael Sawan acknowledged that the journey towards a net-zero emissions energy system is not a straightforward one. He emphasized the need for pragmatism in facing the uncertainties and variations in the pace of this transition across different countries.

Chevron's Pragmatic and Consistent Approach

Chevron Vice Chairman Mark Nelson echoed a similar sentiment at an investor event last year. He highlighted Chevron's commitment to remain pragmatic and consistent as it invests in transition businesses. Nelson emphasized the importance of balancing economic prosperity, energy security, and environmental protection in conversations about the energy system.

Analysts' Perspective on Pragmatic Oil Company Strategies

Analysts also recognize the value of pragmatism in oil company strategies. Piper Sandler analyst Ryan Todd praised Chevron's approach, describing it as a pragmatic balance between investing in low-carbon businesses while also protecting returns. This signifies an acknowledgment of the need to allocate capital sensibly without diluting overall financial performance.

Appeasing Critics: The Pragmatic Explanation

All major oil companies acknowledge their products' contribution to climate change and have committed to varying levels of mitigation. However, they face criticism from investors for allocating too much money towards wind and solar energy, which have not shown the same financial returns as oil in recent years. By emphasizing their approaches as pragmatic, these companies aim to placate investors without arousing regulatory concerns.

In conclusion, the adoption of a pragmatic approach by oil companies in addressing climate change recognizes the challenges and complexities of the transition towards a greener energy system. It highlights the need for a balanced allocation of resources that considers both environmental sustainability and financial returns.

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