By Dmitry Zhdannikov
DAVOS, Switzerland, Jan 24 (Reuters) - When the global oilindustry held its biggest annual gathering this week in theSwiss town of Davos, it invited banking bosses and fund managersto discuss two key topics - climate change and pressure frominvestors.
The conclusion of the discussions was worrying for thosepresent - pressure is rising and the industry is losing a battlenot to be seen as one of the world's biggest evils.
The answer? Lure investors with higher returns and raise thePR game.
"There is no doubt - and there is a consensus coming here invarious meetings in Davos - that our industry is literally undersiege and the future of oil is at stake," said MohammedBarkindo, secretary-general of oil producer group OPEC.
"The industry needs to come together and respond positivelywith facts and figures. We are not shying away from the factthat we have not been able to communicate well," Barkindo said.
The industry gathered on the sidelines of the World EconomicForum, holding a series of closed-door meetings.
The chief of oil giant Chevron, Michael Wirth, haddiscussions with bosses from BP, Royal Dutch/Shell, Total andAramco for the first time as U.S. companies joined European andMiddle Eastern peers in debating climate change. Darren Woods,head of the biggest U.S. oil firm, Exxon Mobil, was absent.
The meetings were also attended by John Flint, chief ofHSBC, Ron Mock, president of Ontario Teachers’ Pension Plan, andexecutives from investment firms Canyon Partners and ValueAct,two sources present at the discussions said.
The climate change debate has split the oil industry overthe past decade.
While U.S. majors took an initially soft approach towardsglobal warming, Shell had urged that the industry be heldresponsible not only for its own emissions, but also for thoseof consumers.
Linked to that debate was pressure from investors urging theoil industry to help tackle climate change, with some pensionfunds including that of Norway saying they would stop investingin the stocks of oil companies.
WINNING HEARTS AND MINDS
The oil industry has repeatedly tried to explain that if itstops investing in new projects, the world will face an energyshortage and price spikes because renewables and nuclear energycannot meet rising energy demand as the global population grows.
"How do you get the hearts and minds of investors back? Thatis a real challenge for our industry," said John Hess, thefounder of independent U.S. producer Hess Corp.
He said investor frustration with the oil industry wasmanifested by the fact that the share of energy companies in theS&P index had shrunk to 5.5 percent, from 16 percent 10 yearsago.
"We will have to compete against other industries in the S&Pto create the value proposition that makes us more attractive. Anew paradigm is coming up which is to generate free cash andshare some of this cash with investors," he said.
The U.S. oil industry has been booming in recent years butinvestors have been frustrated by heavy debts and a lack of freecash flow and dividends.
However, even European oil majors such as Shell and BP,which pay billions of dollars in dividends, have struggled toremain popular with investors.
"We need to engage with policymakers and the public tounderstand the huge task we have ahead," Hess said.
TAX ON WHOLE VALUE CHAIN
BP chief Bob Dudley said the industry needed to explain thechallenge of producing and making energy affordable for anincreasing global population, which will see energy use rising30 percent by 2040.
"You cannot just tax energy-intensive industries and not theusers of energy and think you're going to solve the problem.People need to use less energy. Philosophically, trying to lookat emissions across the entire value chain is critical," Dudleytold Reuters.
The head of state-run Saudi oil giant Aramco, Amin Nasser,said investors would ultimately differentiate between cleanerand more polluting companies.
Aramco wants to list its stock sometime after 2021 in whatcould become the world's largest initial public offering. Nassersaid the latest research by Stanford University found Aramco wasthe cleanest major oil company in the world thanks to zero gasflaring and modern field technology.
He said oil companies could help cut emissions by end usersbut should not ultimately be responsible for them.
"We have to look at what we control. I have control of whatI send to the grid in Saudi Arabia. But we do not have controlover factories in Europe," Nasser said.
"However, it doesn’t mean we don’t care about end users. Asa company we are looking at what we can do to increase theefficiency of end users," he said.
Aramco invests in research to make cars more efficient,increase mileage per gallon and the use of hydrogen in cars. Itrecently acquired high-end rubber producer Arlanxeo to helpreduce tyre friction.
"We need to boost efficiency or get rid of CO2 bytechnology," Nasser said.(Reporting by Dmitry Zhdannikov; Editing by Dale Hudson)
BP (BP.)