Energy Transition Trackers
Assessing Performance of Oil & Gas Transition Strategies
The Idea
The energy transition is reshaping industries and redefining the energy sector. For investors, the challenge lies in understanding whether the capital market prices are reflecting the transition to a low carbon economy and whether companies are realizing financial value from their strategic shifts.
To help investors make these assessments, FFI Solutions has developed the Energy Transition Trackers — hypothetical strategies designed to monitor whether capital markets are pricing the energy transition at both a macro and fundamental level.
The Transition Trackers
Energy Transition Swap
The Energy Transition Swap is a synthetic instrument that tracks the relative performance of clean energy (represented by the QCLN ETF) against traditional energy (represented by the XOP ETF). A positive return for the swap indicates that clean energy has generally outperformed traditional energy over the period. The returns of the swap are designed to provide investors with an illustrative macro view of whether the market is pricing the energy transition—i.e., whether QCLN outperforms XOP.
SWAP Return to QCLN Receiver
No Data Found
Q3 2024 Overview
One’s assessment of the stock price performance of clean versus traditional energy is dependent on the time horizon. The last 3 years have been challenging for clean energy stocks as the exuberance of the 2019 to 2021 period has reversed, in part due to higher interest rates that have impacted pre-profitability clean tech companies. After suffering losses during the 2020 oil price collapse, oil and gas companies rebounded strongly in the post-pandemic recovery but remained below pre-2015 highs due to subdued long-term crude prices. While the 10-year price paths diverged considerably, the performance between clean and traditional over the period is roughly similar.
SWAP Return to QCLN Receiver
No Data Found
Q3 2024 Overview
One’s assessment of the stock price performance of clean versus traditional energy is dependent on the time horizon. The last 3 years have been challenging for clean energy stocks as the exuberance of the 2019 to 2021 period has reversed, in part due to higher interest rates that have impacted pre-profitability clean tech companies. After suffering losses during the 2020 oil price collapse, oil and gas companies rebounded strongly in the post-pandemic recovery but remained below pre-2015 highs due to subdued long-term crude prices. While the 10-year price paths diverged considerably, the performance between clean and traditional over the period is roughly similar.
Oil & Gas Trackers
FFI assesses the financial and strategic positioning of oil and gas companies along the energy transition spectrum using proprietary transition metrics that identify:
- Leaders making ambitious low-carbon commitments and investments
- Laggards relying on primarily on traditional hydrocarbon strategies
We have established separate trackers for integrated companies and independent E&Ps.
Integrated Oil & Gas
Tracks the financial performance and transition strategies of integrated oil and gas companies, highlighting the relative progress of Leaders investing in low-carbon solutions compared to Laggards prioritizing traditional hydrocarbon businesses.
Integrated Oil & Gas
No Data Found
Q3 2024 Overview
The Integrated Leaders, including BP, Shell, and Total, have set relatively ambitious emissions targets and invested more in renewable energy and clean solutions compared to the Integrated Laggards, including Suncor, Imperial Oil, and Cenovus. The Leaders portfolio underperformed the Laggards, returning 7.5% vs. 8.2% (annualized) since January 2022. This suggests that the market may have rewarded Laggards for prioritizing traditional hydrocarbon businesses over Leaders’ long-term low-carbon investments.
Exploration & Production
Tracks the financial performance of exploration and production companies, contrasting Leaders focused on natural gas as a bridge fuel in the energy transition with Laggards reliant on oil production.
Exploration & Production
No Data Found
Q3 2024 Overview
E&P Leaders outperformed E&P Laggards by 16.1% cumulatively since January 2022. This outperformance likely stems from the Leaders having a higher proportion of their production tilted toward natural gas rather than oil. These companies, including many U.S. independent producers, benefited from better natural gas prices and the U.S. becoming the world’s largest LNG exporter. This performance aligns with the view that natural gas can act as a “bridge fuel” in the energy transition, with a corresponding lower risk of asset stranding compared to oil reserves.
Read our full analysis of the Energy Transition Intelligence Trackers:
Methodology
Energy Transition Swap
Synthetic instrument tracking clean energy vs. traditional energy performance
Structure:
- Long position: First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN)
- Short position: SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
- Notional size: $1 million with 20% initial margin
- Daily market-to-market valuation
- Margin call trigger at $100,000, true-up to $200,000
QCLN payer obligations:
- Pay gains in QCLN
- Pay losses in XOP
QCLN receiver obligations:
- Pay gains in XOP
- Pay losses in QCLN
The methodology enables investors to:
- Monitor transition progress across different energy subsectors
- Compare company strategies and implementation
- Track relative performance between clean and traditional energy
- Identify emerging trends in the energy transition
Oil & Gas Trackers
Universe and Data Foundation
- Starting universe: The Carbon Underground Oil & Gas 100 (ranked by emissions embedded in reserves)
- Excludes companies from markets with insufficient shareholder rights or market access
- Data spans 14 key metrics across climate commitments, emissions targets, clean investments, and operational performance
- Quarterly updates to all metrics and rankings
Leaders & Laggards Classification
Integrated Oil & Gas Companies
Evaluates major integrated energy companies on:
- Emissions reduction targets and progress
- Clean energy investment commitments
- Technology development and deployment
- Capital allocation to transition activities
Top third of ranked companies classified as Leaders, bottom third as Laggards
Exploration & Production (E&P) Companies
Assesses independent producers based on:
- Natural gas vs. oil production mix
- Operational efficiency and emissions intensity
- Methane reduction initiatives
- Asset portfolio transition readiness
Top third of ranked companies classified as Leaders, bottom third as Laggards
Download Our Whitepaper
Energy in Transition: A Framework for Evaluating Strategies and Actions of Oil & Gas Companies
The Value of Transition Intelligence
Data-Driven Insights: Leveraging over 25,000 data points, 50 data fields and 14 key metrics spanning climate commitments to clean investments, our Transition Intelligence platform offers a unique view of the transition plans and actions of the 100 largest oil and gas companies.
Strategic Advantage: Unlike other third-party rankings or benchmarks, the platform enables investors to make informed decisions that reflect their unique view on the nature and pace of the energy transition, and what constitutes the “right” transition strategy.
For investors and asset managers alike, these insights aren’t just data — they’re a roadmap to navigating and capitalizing on the energy transition.
Get In Touch
Curious about how these trends could influence your strategies? Interested in a demo of the Transition Intelligence platform? Want to explore the detailed performance of Leaders and Laggards?
Contact Us: Fill out the form or reach out directly to start the conversation. Let’s explore how you can leverage transition insights for strategic advantage.