May '24 Energy, Mining, & Utilities Market Update

EMU in the News:

Continued Headwinds for ESG Funds

A record $8.8bn in net outflows from US sustainable funds in Q12024 indicates lessening investor desire for sustainable-marketed products. Despite that, European sustainable funds saw continued investor interest with $10.9bn in net inflows in the first quarter. Europe now has 84% of the $3T in global sustainable funds. 

All markets are seeing substantial pullback in interest for sustainable investing given headwinds from both politicization of ESG* and greenwashing. In fact, increased political restrictions on ESG funds have dented their availability and purchase by major institutional investors, like state pension funds.

Among fund managers in the space that offer ESG and sustainability-focused funds, most are seeing similar withdrawal rates and no one firm has borne the brunt. This indicates the widespread nature of less enthusiasm for sustainable-focused funds, as particular funds and investment strategies are not being targeted.

Per Wall Street Journal

Q1 Earnings:

Exxon Mobil and Chevron Meeting Expectations

Both Exxon Mobil and Chevron reported quarterly results largely in line with expectations but far below prior recent years’ performance. Exxon and Chevron maintained their positions as the two largest oil and gas companies in the US despite decreases in profitability overall in the first quarter relative to last year.

Oil prices are now up 16.8% YTD and recent oil finds in Guyana have created excitement (and contractual disagreements) for both of them. Continued increases in dividends and share repurchases has provided extra appeal in an environment that continues to question long-term viability of fossil fuels. For now, the US's continued ascent in fossil fuel production--it is still holding the title of world's largest producer--has continued to lift the boats of the oil majors.

Per Wall Street Journal

NextEra Renewables Boost

NextEra Energy with its renewable focus fared well despite the previously noted decreases in investor enthusiasm for sustainable funds. NextEra’s renewables portfolio turned in better than expected results on the back of a higher rate of originations of new alternative energy production deals. With a concentration in solar panels and wind turbines, continued government and consumer support in North America has turbocharged project expectations for builders like NextEra.

Notably, sales were down 1.3% year over year, but overall profitability increased as NextEra continues to pursue maturation in its industry. High levels of capital expenditures differentiate renewables businesses with their growth potential relative to oil and gas. Interestingly, NextEra's performance is also influenced by its utility operation downstream for customers that exposes it to broader energy prices, but upside from developing energy capacity for its own areas holds long term potential for vertical integration.

Per Motley Fool

M&A and Capital Activity:

• Saudi Water Infrastructure Company Miahona is Going Public 

  • The water lifecycle firm that helps to both extract and supply recycled water is listing 30% of its equity on the Dubai Stock Exchange next month 

  • Saudi Fransi Capital is advising on the capital raise 

  • Dubai’s recent spurt of IPO* activity is a bright spot in the development of public markets in the Gulf given the recent slow down in activity in 2023 

• KKR just reached $11B in fundraising for its $20B infrastructure investment fund 

• Argentine Copper Miner Antofagasta Contemplating Bond Issuance 

  • With renewed interest in copper deposits, the Argentine copper giant is considering a bond sale for the first time in two years

  • President Milie's privatization efforts have ignited excitement for foreign investment in Argentina's wealth of natural resources

• Anglo-American Rejects BHP's Takeover Bid

  • A $39Bn offer made by American mining firm BHP for British miner Anglo-American was rejected as being too low

  • It is anticipated that BHP will submit revised offers and potentially spark a bidding war to take over Anglo

  • Aside from divesting two South African assets, the entirety of Anglo would be acquired, which would add significant exposure to copper for BHP