Millions of Texans remained without power on Wednesday morning although temperatures climbed above freezing across half of the state, a possible sign the state’s power grid could make significant progress restoring service. Pockets of Texas entered their third straight day of widespread power outages amid an extended winter storm, as electric utilities and the power grid scrambled to restore service.
The grid operators and power companies pleaded for patience as they tried to restore normal service. “We know this is hard. We continue to work as quickly and safely as possible to restore power,” the Texas grid operator tweeted Wednesday morning. “We hope to reduce outages over the course of the day.”
The emergency situation began in the early morning hours of Monday when several power plants tripped offline in rapid succession. The deep freeze continued into Wednesday in the northern part of the state, making it difficult for officials to restore power across the state.
What is happening in Texas?
An unusual Arctic blast spread across Texas on Monday and Tuesday from the tip of the Panhandle all the way to the Rio Grande Valley. Residents of large swaths of the state experienced two straight days of single-digit temperatures.
The widespread cold weather led to record-breaking demand for electricity. On Sunday night into Monday morning, frigid conditions hobbled dozens of power plants. This led the state’s grid operator to declare its most serious state of emergency at about 1:30 a.m. Monday.
BP and Chevron have made a landmark expansion into geothermal energy on Tuesday, betting on a new technology that could prove to be the world’s first scalable clean energy derived from a constant source: the natural heat of the earth,
The two major oil companies have headlined a $40 million funding round into a Canadian geothermal energy firm called Eavor. Based in Calgary, Eavor has pioneered a new form of technology that could feasibly be deployed in many places around the world.
The investment marks a key move into an area otherwise ignored by energy companies, which have largely looked to wind and solar projects in their efforts to diversify away from fossil fields.
It is the first investment into geothermal energy for BP
BP,
+1.45%
and a re-entry into the field for Chevron
CVX,
+0.58%,
which sold its geothermal assets in 2016.
Eavor has previously only accepted angel investment and venture capital. The $40 million injection will be used to further research and development to help scale the power system to be price-competitive.
Also read: Even with $1.1 trillion firepower, this fund is battling rivals to get its hands on green-energy opportunities
“We see Eavor’s potential to be complementary to our growing wind and solar portfolios,” said Felipe Arbelaez, BP’s senior vice president of zero carbon energy. “Technology such as Eavor’s has the potential to deliver geothermal power and heat and help unlock a low carbon future.”
Eavor has developed a new type of geothermal technology that, in very simple terms, creates an underground “radiator.”
The Eavor “Loop” consists of a closed-loop network of pipes installed typically 3 kilometers to 4 kilometers below the earth’s surface, originating and terminating in the same aboveground facility. The pipes are installed using advanced drilling techniques perfected in the oil patch.
Liquid travels in the pipes from the aboveground facility through the hot ambient underground environment, before naturally circulating back to the top of the loop. The hot liquid is then converted into electricity or transferred to a district heat grid.
A major advantage to this type of energy is that it is constant, providing a base load of electricity to a grid system without requiring challenging battery solutions of intermittent wind and solar power.
Shots from a virtual tour of Eavor’s full-scale prototype.
Photo courtesy of Eavor.
Unlike hydroelectricity, which relies on large sources of constant water flow, it is designed to be scaled, and Eavor envisions rigs installed under solar panel fields and in space-constrained regions like Singapore.
Geothermal energy has been around for decades, enjoying a boom period in the 1970s and 1980s before largely falling out of the spotlight in the 1990s. Relying on heat below the surface of the earth, it has long been an attractive proposition for oil-and-gas companies, which have core expertise in below-ground exploration and drilling.
The problem is that conventional geothermal technology relies on finding superhot water sources underground, making them expensive, risky, and rare bets. More recent advances have roots in the shale oil boom, and use fracking techniques to actually create the underground reservoirs needed to generate energy. But this can pose a problem from an environmental and sustainability standpoint.
Eavor’s solution doesn’t require the exploratory risk of traditional geothermal energy or disrupt the earth the way that fracking-style geothermal does.
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John Redfern, Eavor’s president and chief executive, told MarketWatch that the system’s predictability, established in field trials in partnership with Royal Dutch Shell
RDSA,
+1.25%,
is repeatable and scalable, making it much like wind and solar installations.
“We’re not an exploration game like traditional oil and gas or traditional geothermal. We’re a repeatable manufacturing process, and as such we don’t need the same rate of return,” Redfern said.
“Before we even build the system, unlike an oil well or traditional geothermal, we already know what the outputs can be. Once it is up and running, it is super predictable,” Redfern said. “Therefore, you can finance these things exactly like wind and solar, with a lot of debt at very low interest rates.”
spoke about combining the oil giants after the pandemic shook the world last year, according to people familiar with the talks, testing the waters for what could be one of the largest corporate mergers ever.
Chevron Chief Executive
Mike Wirth
and Exxon CEO
Darren Woods
discussed a merger following the outbreak of the new coronavirus, which decimated oil and gas demand and put enormous financial strain on both companies, the people said. The discussions were described as preliminary and aren’t ongoing but could come back in the future, the people said.
Such a deal would reunite the two largest descendants of
John D. Rockefeller’s
Standard Oil monopoly, which was broken up by U.S. regulators in 1911, and reshape the oil industry.
A combined company’s market value could top $350 billion. Exxon has a market value of $190 billion, while Chevron’s is $164 billion. Together, they would likely form the world’s second largest oil company by market capitalization and production, producing about 7 million barrels of oil and gas a day, based on pre-pandemic levels, second only in both measures to Saudi Aramco.
But a merger of the two largest American oil companies could encounter regulatory and antitrust challenges under the Biden administration. President Biden has said climate change is one of the biggest crises the country faces. In October, he said he would push the country to “transition away from the oil industry.” He hasn’t been as vocal about antitrust matters, and the administration has yet to nominate the Justice Department’s head of that division.
One of the people familiar with the talks said the sides may have missed an opportunity to consummate the deal under former President
Donald Trump,
whose administration was seen as more friendly to the industry.
Darren Woods, CEO Exxon Mobil Corp., at an industry conference in 2018
Photo:
Andrew Harrer/Bloomberg News
A handful of sizable oil and gas deals were completed last year, including Chevron’s $5 billion takeover of Noble Energy Inc. and
ConocoPhillips
COP -2.63%
’ roughly $10 billion takeover of Concho Resources Inc., but nothing close to the scale of combining San Ramon, Calif.-based Chevron and Irving, Texas-based Exxon.
Such a deal would significantly surpass in size the mega-oil-mergers of the late 1990s and early 2000s, which included the combination of Exxon and Mobil and Chevron and Texaco Inc.
It also could be the largest corporate tie-up ever, depending on its structure. That distinction currently belongs to the roughly $181 billion purchase of German conglomerate Mannesmann AG by Vodafone AirTouch Plc in 2000, according to Dealogic.
Many investors, analysts and energy executives have called for consolidation in the beleaguered oil-and-gas industry, arguing that cutting costs and improving operational efficiencies would help companies weather the pandemic-induced downturn and prepare for an uncertain future as many countries seek to reduce their dependence on fossil fuels to combat climate change.
In an interview discussing Chevron’s earnings Friday, Mr. Wirth, who like Mr. Woods also serves as his company’s board chairman, said that consolidation could make the industry more efficient. He was speaking generally and not about a possible Exxon-Chevron merger.
“As for larger scale things, it’s happened before,” Mr. Wirth said, referring to the 1990s and early-2000s megamergers. “Time will tell.”
Paul Sankey,
an independent analyst who hypothesized a merger of Chevron and Exxon in October, estimated at the time that the combined company would have a market capitalization of about $300 billion and $100 billion in debt. A merger would allow them to cut a combined $15 billion in administrative expenses and $10 billion in annual capital expenditures, he wrote.
An abundance of fossil fuels combined with advances in technology to harness wind and solar power has sent energy prices crashing around the world. WSJ explains how it all happened at once. Photo illustration: Carlos Waters/WSJ
Exxon was America’s most valuable company seven years ago, with a market value of more than $400 billion, nearly double Chevron’s. But Exxon has fallen from its heights following a series of strategic missteps, which were further exacerbated by the pandemic. It has been eclipsed as a profit engine by tech giants such as
Apple Inc.
AAPL -3.74%
and
Amazon.com Inc.,
AMZN -0.97%
in recent years and was removed from the Dow Jones Industrial Average last year for the first time since it was added as Standard Oil of New Jersey in 1928.
Exxon’s shares have fallen nearly 29% over the last year, while Chevron’s are down about 20%. Chevron briefly topped Exxon in market capitalization in the fall.
Exxon endured one of its worst financial performances ever in 2020. It is expected to report a fourth consecutive quarterly loss for the first time in modern history on Tuesday and already has posted more than $2 billion in losses through the first three quarters of 2020.
Chevron also has struggled, reporting nearly $5.5 billion in 2020 losses Friday. But investors have expressed more faith in Chevron because it entered the downturn with a stronger balance sheet—in part because it walked away from its $33 billion bid to buy Anadarko Petroleum Corp. before the pandemic, having been outbid by
Occidental Petroleum Corp.
OXY -4.25%
in 2019.
Exxon has about $69 billion in debt as of September, while Chevron has around $35 billion, according to S&P Global Market Intelligence.
Some investors have grown increasingly concerned about Exxon’s direction under Mr. Woods as the company faces a rapidly changing energy industry and growing global consciousness about climate change. Some are also worried that Exxon may have to cut its hefty dividend, which costs it about $15 billion annually, due to its high debt levels. Many individual investors count on the payments as a source of income.
Mr. Woods embarked on an ambitious plan in 2018 to spend $230 billion to pump an additional one million barrels of oil and gas a day by 2025. But before the pandemic, production was up only slightly and Exxon’s financial flexibility was diminished. In November, Exxon retreated from the plan and said it would cut billions of dollars from its capital spending every year through 2025 and focus on investing in only the most promising assets.
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Meanwhile, the company’s woes have helped draw the attention of activist investors. One of them, Engine No. 1 LLC, has argued that the company should focus more on investments in clean energy while cutting costs elsewhere to preserve its dividend. The firm nominated four directors to Exxon’s board Wednesday and called for it to make strategic changes to its business plan.
Exxon also has been in talks with another activist, D.E. Shaw Group, and is preparing to announce one or more new board members, additional spending cuts and investments in new technologies to help it reduce its carbon emissions.
Rivals such as
BP
BP -2.80%
PLC and
Royal Dutch Shell
RDS.A -3.53%
PLC have embarked on bold strategies to remake their business as regulatory and investor pressure to reduce carbon emissions mounts. Both have said they will invest heavily in renewable energy—a strategy that their investors so far haven’t rewarded.
Exxon and Chevron haven’t invested substantially in renewables, instead choosing to double down on oil and gas. Both companies have argued that the world will need vast amounts of fossil fuels for decades to come, and that they can capitalize on current underinvestment in oil production.
Write to Christopher M. Matthews at christopher.matthews@wsj.com, Emily Glazer at emily.glazer@wsj.com and Cara Lombardo at cara.lombardo@wsj.com