Philippa Kaur

TOWARDS THE end of the second world war Franklin D. Roosevelt attended a fateful gathering of world leaders that helped determine the course of geopolitics for decades. No, not the Yalta summit. Immediately after FDR, Churchill and Stalin had carved up the world into spheres of influence, the American president slipped away onto an American naval vessel to meet quietly with Abdel Aziz ibn Saud, king of Saudi Arabia. In return for protection of the Sauds’ sovereignty in the Holy Land, the monarch agreed to grant American oil firms access to his country’s petroleum. Building on the long-standing exploitation of Persian reserves by the Anglo-Persian Oil Company (now BP), the Saudi-American alliance formed the axis of oil that led Western majors to look longingly first to the Persian Gulf, then to other distant longitudes. For decades the world’s five biggest private-sector oil companies—America’s ExxonMobil and Chevron, Britain’s BP and Shell, and France’s TotalEnergies—have drilled from South America to Siberia. Now a swirl of geopolitical, economic and environmental factors is leading these “supermajors” to increasingly look not east and west but north and south.This realignment comes as big oil’s coffers are overflowing after two years of high energy prices (see chart 1). On February 2nd Britain’s Shell unveiled annual net profits for 2022 of nearly $40bn, more than double the figure a year earlier and its highest in over a century as a listed company. That came on the heels of America’s ExxonMobil announcing a record annual net profit of $59bn (excluding one-off charges). Its main domestic rival, Chevron, also reported that its net profit more than doubled, to $36bn. BP and TotalEnergies will add to the haul on February 7th and 8th, respectively. All told, reckons Amy Wong of Credit Suisse, a bank, those five supermajors may have raked in around $200bn in profits last year. A slug of this bounty will flow to shareholders; in January ExxonMobil said it would fork over a cool $35bn in total to its owners this year and next. Some will go to pay down debt. Much of the rest will, though, be reinvested.After several years of repressed investment in oil and gas, the result of pandemic-induced demand destruction and climate-related policy hostility, big oil is once again spending to find oil and dig it out of the ground. S&P Global, a research firm, estimates that worldwide upstream capital expenditure for the industry as a whole, including private-sector majors and national oil companies, was around $450bn last year, up from a 15-year low of $350bn or so in 2020. This year it may be higher still. All this new money is not flowing to the same old places. The West’s oil titans are experiencing “a fundamental shift in thinking”, says Edward Morse of Citigroup, a bank. American companies are beating a retreat from faraway “frontier” areas that are rich in political risk, lack the infrastructure to get hydrocarbons to market as cleanly as possible, or both. Their less risk-averse European rivals are shunning some of their own American projects in favour of Africa, with potential for climate-friendlier new developments. In both cases, the upshot is a realignment of the oil business along lines of longitude.A latitude shiftFor the American supermajors, this means less interest outside the Americas. ExxonMobil has, like most Western firms, left Russia after its invasion of Ukraine. It has also offloaded—or wants to offload—assets in countries such as Cameroon, Chad, Equatorial Guinea and Nigeria. Chevron has sold projects in Britain and Denmark (as well as Brazil) and has not renewed expiring concessions in Indonesia and Thailand. James West of Evercore, an investment bank, sees Chevron and ExxonMobil shifting a huge amount of capital spending to South America and the United States itself. ExxonMobil is investing heavily in newfound fields in Guyana. Chevron intends to funnel more than a third of its capital expenditure this year to American shale, and another 20% to the Gulf of Mexico. Last month it also, with President Joe Biden’s blessing, restarted trading some crude from Venezuela, a dictatorship that had long been on America’s naughty list.The European oil giants are also reducing their eastern and western exposure. BP and Shell are, like ExxonMobil, quitting Russia, leading to write-downs of as much as $25bn and $5bn, respectively. Shell has also got rid of its shale assets in Texas and reportedly put a few in the Gulf of Mexico up for sale. BP is divesting its Mexican oil assets, and is rumoured to be getting out of Angola, Azerbaijan, Iraq, Oman and the United Arab Emirates. TotalEnergies is pulling out of Canada’s oil sands.Instead, the Europeans’ gaze is, as with their American rivals, turning south. In January Claudio Descalzi, boss of Eni, an Italian non-super major, called for Europe to look to Africa as it seeks to replace Russian energy. Such a “south-north axis”, he argued, would boost Europe’s access to traditional fossil fuels, as well as to cleaner alternatives like renewable energy and hydrogen (which could be shipped or piped north). On January 28th Eni announced it had signed an $8bn natural-gas deal with Libya’s state-owned National Oil Corporation (which includes a bit of money for carbon capture and storage). Shell and Equinor, Norway’s state oil firm, signed an agreement with Tanzania to build a $30bn liquefied natural gas (LNG) terminal in the east African country. TotalEnergies is investing in gas projects in Mozambique and South Africa.There are two main reasons for this realignment. The first, a chief preoccupation of the Americans, has to do with risks and returns. In previous eras of high oil prices oil bosses spent, in the words of one, “like drunken sailors”. Too much investment and not enough cost control in the go-go years led to huge waste and overproduction. In the years before the covid-19 pandemic, oil projects from the Caspian Sea to the Permian basin lost billions of dollars. Tens of billions more in shareholder value went up in smoke. These days investors are demanding much greater capital discipline from oil bosses. And the bosses are listening. The industry’s combined capital spending, though up from its recent trough, is still down from a peak of nearly $800bn in 2014. As for the money that the supermajors are spending, it is being deployed more judiciously. Most of it is going into “short-cycle” investments, which generate a return within five years rather than ten or more. “I’ve been in this industry since the 1990s and I’ve never seen this much focus on efficiency,” marvels Julie Wilson of Wood Mackenzie, a consultancy. This quest for efficiency means fewer risky bets in inhospitable places like the Arctic or the deep ocean floor and more projects in familiar jurisdictions with less daunting politics and geology. For the American firms, of course, nowhere is more familiar than the United States. They also understand South America. And parts of their backyard they know less well, like Guyana. That country, whose long-rumoured oil riches were only confirmed in 2015, may also be, counter-intuitively, less politically risky in important ways. Unlike their peers in many resource-cursed autocracies, who cannot imagine a future without oil, politicians in places with newly discovered resources are more cautious about their prospects. As a result, they tend to offer more favourable terms to oil companies in order to get hydrocarbons to market faster; in Guyana, ExxonMobil moved from first deepwater oil discovery to production in just a couple of years. For the Europeans, African countries, which often maintain reasonable relations with their former colonial powers, look appealing for a similar reason. As for their retreat from America, European firms are becoming uneasy about their association with America’s oil industry, with its unapologetically brown reputation. In 2021 TotalEnergies withdrew from the American Petroleum Institute because of the lobby group’s opposition to electric-vehicle subsidies, carbon pricing and tougher rules on emissions of methane, a potent greenhouse gas.In doing so, the European firms are responding to growing pressure from consumers, policymakers and investors to start decarbonising their portfolios—the Europeans’ big reason for the geographical sorting. They are looking for new places to invest because such investments, which use the latest technology, tend to be more efficient and less carbon-intensive than legacy assets that rely on leakier, ageing infrastructure. Moreover, oil companies, especially in Europe, are looking beyond fossil fuels. James Thompson of JPMorgan Chase, a bank, has found that the historical correlation between high oil prices and high capital spending on oil and gas has broken down for 11 big private-sector energy giants—a phenomenon he puts down in part to the majors pouring more money into low-carbon projects. Such projects are indeed mushrooming, particularly among the European firms—and in many of the same places as their new hydrocarbon ventures. Last May Eni struck a deal with Sonatrach, Algeria’s state oil firm, to develop green hydrogen from renewable sources. BP is doing the same in Mauritania and TotalEnergies has backed renewable-energy production in South Africa. Looking north, last year Shell paid nearly $2bn for Nature Energy, a Danish producer of “renewable” natural gas (RNG) made from things like agricultural waste. In December BP completed its $4.1bn acquisition of Archaea, which also makes RNG. Oswald Clint of Bernstein, a broker, predicts “an era of giga-mergers” in green energy led by the European giants. Last year the oil majors already signed 22 renewables deals, the five biggest of which added up to $12bn. Mr Clint reckons that in 2030 the European majors could, all told, be spending roughly half their capital expenditure on low-carbon initiatives. The supermajors’ north-south realignment is far from complete. bp is still making some investments in the Gulf of Mexico. Shell and TotalEnergies are betting on Qatari LNG. ExxonMobil is doubling down on a gas project in Mozambique. Chevron is expanding an oil project in Kazakhstan and, reportedly, reviving talks with Algeria’s government about the country’s shale reserves. But these increasingly look like exceptions rather than the rule. The future of energy exploration looks much leaner, a bit greener—and a lot more longitudinal. ■ More

FOR MARK ZUCKERBERG, the first three quarters of last year were rough. In July 2022 his social-media empire, Meta, announced its first ever year-on-year decline in quarterly revenues. Three months later it reported another. Investors sneered at his expensive pivot from a lucrative ads business to the untested realm of the metaverse, on which Mr Zuckerberg was splurging $10bn a year. By November Meta had lost roughly three-fifths of its market value since its peak of $1.1trn in August 2021, when the covid-19 pandemic meant that much of daily life was being lived online. Shortly after he sacked 11,000 people, or 13% of its workforce. All the while, he has been fending off trustbusters and, in TikTok, a rival that has proved considerably more adept than previous challengers such as Snap or Pinterest at attracting eyeballs—and with them advertising dollars. Listen to this story. Enjoy more audio and podcasts on More

If you ask something of ChatGPT, an artificial-intelligence (AI) tool that is all the rage, the responses you get back are almost instantaneous, utterly certain and often wrong. It is a bit like talking to an economist. The questions raised by technologies like ChatGPT yield much more tentative answers. But they are ones that managers ought to start asking. Listen to this story. Enjoy more audio and podcasts on More

To get a sense of why Toyoda Akio announced on January 26th that he would hand over the keys to the world’s biggest carmaker to Sato Koji, his number two, watch the surreal video from 2021 of the two of them driving Toyota’s first Lexus electric vehicle (EV). Mr Toyoda is at the wheel. At first, it is clear that he is a bit of an EV sceptic: he notes that the car feels heavy to drive. Then he puts his foot to the floor, and as the speed picks up he whoops with joy like an overexcited Top Gun pilot. It is cringeworthy—but pertinent. Toyota is seen by many as an EV laggard. In announcing his decision to vacate his position to Mr Sato, who is 13 years younger, the chairman-designate made clear it was time for a new generation to speed up the move into the electric era. Listen to this story. Enjoy more audio and podcasts on More

Naming a hedge fund is easy. Anodyne references to the natural world (peaks, stones, rivers or points) will usually do. Failing that, invoke ancient Greece. Christening a shock-and-awe short-selling outfit requires more creativity. Hindenburg Research, named after the doomed hydrogen-filled German airship, was founded by Nathan Anderson in 2017 to hunt for impending corporate disasters, and then hold a torch to them. The firm releases research reports on its website and typically profits when its targets’ shares plummet in value.Listen to this story. Enjoy more audio and podcasts on More

Relationships do not always live up to the hopes of yesteryear. In 2018 Carlos Ghosn, then boss of the Renault-Nissan-Mitsubishi alliance, predicted combined sales of 14m vehicles in 2022. In fact sales may not have hit half that number. Pandemic-era supply-chain snarl-ups are only partly to blame. Another reason was the failure of Mr Ghosn’s plan for a much closer bond between Nissan, the Japanese firm he had rescued from bankruptcy in 1999, and Renault (the smaller Mitsubishi has been less integral to the pact). Although the partners benefited from joint purchasing, a few shared factories and some common parts and designs, Nissan largely followed its own road: the Renault Zoe and Nissan Leaf, similar electric cars, shared few components. Listen to this story. Enjoy more audio and podcasts on More

GAUTAM ADANI is no stranger to ambush. In 1998 the Indian tycoon was kidnapped and reportedly released for a multimillion-dollar ransom. In 2008 he was at the Taj Mahal Palace Hotel in Mumbai during a terrorist attack, and spent a night hiding in the basement. Now he faces an assault of a different kind—not on his person but on the conglomerate that bears his name. In the space of a week a staggering $92bn, or two-fifths, has been wiped from the market value of the Adani Group’s ten listed companies (see chart 1). The yields on some of those firms’ bonds at times spiked into distressed territory (see chart 2). Mr Adani’s personal fortune, the world’s third-biggest at the start of the year, has shrivelled by $50bn. A $2.5bn secondary share offering was abruptly pulled on February 1st. The rout raises questions about one of India’s mightiest business houses, the fate of its pharaonic ambitions in everything from clean energy to media—and about India’s tycoon-powered version of capitalism.The haemorrhage was caused by what looks, next to an industrial empire spanning ports, power stations, media and much else besides, like a peashooter. On January 24th Hindenburg Research, a small New York investment firm, published a report accusing the Adani Group of pulling “the largest con in corporate history”. Hindenburg, which had taken short positions on some internationally traded Adani bonds and derivatives, detailed allegations of stock manipulation and other financial mischief. The purpose, according to the short-seller, was to inflate the market value of Mr Adani’s listed companies. Within days the Adani Group issued a 413-page rebuttal, calling Hindenburg’s report “all lies”—and a “calculated attack” on India itself. The Adani Group said it had always been in “compliance with all laws”.This forceful response initially looked like enough to let Adani Enterprises, the group’s flagship listed entity, conclude its secondary share offering, which was due to price on February 1st. With Adani Enterprises’ existing shares trading below the offering’s issue price, retail investors showed tepid interest. Still, Adani Enterprises managed to line up anchor investors (among them the Life Insurance Corporation of India, or LIC, the State Bank of India, and some big American banks) and a handful of deep-pocketed backers who apparently did not mind paying over the odds. These included IHC, an Emirati fund with prior investments in Adani companies, which chipped in $400m, as well as, reportedly, several family offices of fellow Indian plutocrats.Then, on the afternoon of February 1st, Bloomberg reported that Credit Suisse, a bank, stopped accepting Adani firms’ bonds as collateral for margin loans to its private-banking clients. The share price of Adani Enterprises collapsed by nearly 30%. Those of other Adani firms also slid. Their bond prices, having clawed back earlier losses the day before, took another hammering. It was later that evening that the Adani Group cancelled the secondary offering, pointing to “unprecedented” market conditions. What comes next is uncertain. The conglomerate’s executives have been dispatched around the world to reassure nervy investors. An internal risk team first created to deal with the covid-19 shock, then deployed to tackle problems arising from supply-chain disruptions caused by the war in Ukraine, has been put on high alert. Spending plans are said to be funded for the next two or three years. In the statement calling off the share issue, Mr Adani said, “Our balance-sheet is very healthy with strong cashflows and secure assets, and we have an impeccable track record of servicing our debt.”The threat to the empire does not appear existential. Mr Adani is considered an able operator and his companies own many valuable assets. They run some of India’s biggest ports (plus a few in Australia, Israel and Sri Lanka), warehouse 30% of its grain, operate a fifth of its power-transmission lines, accommodate a quarter of its commercial air traffic, and produce perhaps a fifth of its cement. A Singaporean joint venture vies to be India’s largest food company. In the last financial year the group’s listed companies had total revenues of $25bn, equivalent to 0.7% of Indian GDP, and a net profit of $1.8bn. Their combined annual capital spending of around $5bn accounts for 7% of the total for India’s 500 biggest non-financial firms. In his statement, Mr Adani insisted that the decision to scrap the secondary offering “will not have any impact on our existing operations and future plans”. No rating agency has yet reappraised the group’s debt, which boasts an investment grade. Nor have Hindenburg’s allegations so far led compilers of global stockmarket indices to drop Adani firms from their benchmarks. One of the index-managers, FTSE Russell, has said it does not at this point intend to take action. Another, MSCI, is expected to weigh in soon. Yet it is hard to believe that Mr Adani’s grand nation-building designs will be unaffected. Between 2023 and 2027 his group was forecast to spend more than $50bn on investments. It is building a new airport near Mumbai, spending a total of $5bn on three seaports, and planning to construct a $5bn steel mill in partnership with POSCO, a South Korean conglomerate. Its envisioned projects in renewables and hydrogen were seen as the cornerstone of an effort, championed by India’s prime minister, Narendra Modi, to turn the country into a global clean-energy powerhouse. All this requires masses of capital, a slug of which was meant to come from the new share offering. If the yields on Adani bonds remain elevated and its share prices depressed, securing the necessary funds will prove difficult.Then there are the possible spillovers to the rest of India Inc. So far the knock-on effects on firms like LIC and State Bank of India have been painful but not life-threatening; their share prices declined by 8% and 5%, respectively on February 1st. LIC says that Adani shares make up less than 1% of its assets under management. Virtually no Indian mutual funds hold significant stakes in the group’s companies (a fact that Hindenburg cited in its report as evidence of the Indian market’s lack of confidence in them). State Bank of India, which is also a lender to the group, says it is not concerned about its loans to Adani companies, which are secured by cash-generating assets. CLSA, a broker, puts Indian lenders’ total exposure to the five biggest Adani firms at $24bn—a manageable 0.5% of all loans across the Indian banking sector.Foreign investors are not taking any chances. In the past week Indian stocks have underperformed other emerging markets (see chart 3). In just two days, Friday January 27th and Monday January 30th, global funds pulled a net $1.5bn from the Indian stockmarket. Compliance-obsessed Western multinationals may think twice before forging new partnerships with tycoons, in recent years their preferred route to the vast Indian market.As the week’s drama unfolded, Mr Adani was himself abroad, officially taking ownership of the port in Haifa he acquired in 2022 for $1.2bn—and unofficially doubtless trying to send a reassuring message to his foreign backers. “I promise you that in the years to come we will transform the skyline we see around us,” he told his Israeli audience on January 31st. He first has an awful lot of repair work to be getting on with at home. ■ More

Every so often a new technology captures the world’s imagination. The latest example, judging by the chatter in Silicon Valley, as well as on Wall Street and in corporate corner offices, newsrooms and classrooms around the world, is ChatGPT. In just five days after its unveiling in November the artificially intelligent chatbot, created by a startup called OpenAI, drew 1m users, making it one of the fastest consumer-product launches in history. Microsoft, which has just invested $10bn in OpenAI, wants ChatGPT-like powers, which include generating text, images, music and video that seem like they could have been created by humans, to infuse much of the software it sells. On January 26th Google published a paper describing a similar model that can create new music from a text description of a song. When Alphabet, its parent company, presents quarterly earnings on February 2nd, investors will be listening out for its answer to ChatGPT. On January 29th Bloomberg reported that Baidu, a Chinese search giant, wants to incorporate a chatbot More