The world is changing - and HIP Investors would be wise to remember the adage that the past is not the best predictor of the future. HIP companies (companies that are focused on sustainable, profitable growth), are best positioned to not only survive these changes, but to take advantage of them and leap to the head of the pack.

Big Oil (the top oil companies including BP, Exxon, Chevron and Shell) all reported high earnings and financial success in 2007 - BUT can it continue? As the New York Times reports, Exxon may have recorded annual sales of $404.5 billion, up 7 percent from 2006 but its capital and exploration expenditure increased only by$1 billion from the previous year. And, their profit was mostly a direct result of the near-doubling of oil prices last year. The Times reports that, “crude oil prices rose from a low of around $50 a barrel in early 2007 to almost $100 by the end of the year — the biggest jump in oil prices in any one year.”

Prices are not likely to remain at $100 - OPEC is committed to dropping the cost to $80 a barrel. Even though production is dropping, which puts pressure on prices, the dynamic is changing. Oil companies are having trouble keeping up with demand (Exxon’s production also dropped to only 2.5 million barrels/day last year, nearly a 50% decrease after they pulled out of Venezuela) and as a result, consumers are searching for new sources of power.

The bottom line - energy needs are changing. While the demand for energy is growing, the world is finally starting to get serious about global warming. The San Francisco Chronicle reports:

“Many countries have already committed themselves to lowering their carbon dioxide emissions, which is hard to do without cutting back on oil and gasoline use. In the United States, congressional Democrats have made it one of their priorities, and about half of the states are exploring ways to do it if the federal government doesn’t. Last year’s federal energy legislation mandated a dramatic increase in the use of biofuels - alternatives to petroleum - and California is pushing ahead with its own low-carbon fuel plan.”

Yet, Big Oil companies are still failing to take the necessary steps. While many are making an effort to reduce the emissions from their brand of petroleum, and actively participating in discussions about what level carbon taxes can and should be set at, it’s at best, a first step. In HIP’s analysis of Big Oil, the highest percentage of a company’s capital expenditures invested in alternative energy was by BP - at a dismal 1.2%. The marketing is there - the innovative partnerships (turning chicken fat and algae into energy) but is the true commitment.

The NY Times reports that California’s solar industry is growing dramatically. In 2007 alone, there was a 50 percent increase in solar generating capacity and, “that growth rate is likely to increase, in part because of ambitious new projects like the 177-megawatt solar thermal plant that Pacific Gas and Electric said last November it would build in San Luis Obispo.”

Independent companies are reaping the benefits - one company, founded in 2006, is now employing over 200 people and reports over $29 million in annual sales. California is often the leader in the nation - HIP expects this industry to expand across the nation, along with other alternative energy sources including the more commonplace such as wind as well as the more unique like the project ConocoPhillips launched with Tyson Chicken to turn excess fat into energy and the lesser known industries like Photovoltaic (a branch of solar technology in which top companies report five-year returns up to 144%!). Read Energize Your Portfolio for a synopsis on some of the emerging leaders in the alternative energy market.

Oil companies that truly recommit themselves as “energy” companies have a promising future. And those that fall out, or continue to make a cursory effort, will have a long way to go.

Your Turn

Who will you invest in? Be a HIP Investor and understand that the future is changing - and companies with a focus on their impact on our world are well-positioned to excel, financially and socially.

1) Ask HIP Questions:

  • What are you doing to prepare for the carbon tax?
  • How much are you spending on alternative energy development?
  • What are your company’s goals to get away from a dependence on oil?
  • How will you report your social and environmental impacts to investors and consumers?

2) Demand specific, measurable results for all of the company’s Human Impact commitments.

3) HIP your portfolio - focus on the Human Impact + Profit potential and increase the overall value and potential of your investments.

Sources:

Mouawad, Jad, Exxon Mobil Profit Sets Record Again, New York Times, 1 February 2008

Richtel, Matt and Markoff, John, A Green Energy Industry Takes Root in California, New York Times, 1 February 2008

Baker, David R., Big Oil Has Trouble Finding New Fields, San Francisco Chronicle, 1 February 2008

Herman, R. Paul, Olsen, Sara & Feldman, Amy, Sensible Investing - Oil, An Analysis by HIP Investor + SVT Group, Fast Company Magazine, February 2008