What do the Trust Busters, ESG, Standard Oil, Shareholder Returns & Offshore all have in common?

Using history as a guide is only good if the constraints and context that existed in the past are similar to those of the present.

When they are not, they can lead us to some incorrect conclusions.

Recently I have been telling anyone that will listen, “This cycle is not like the 1970s or 2000s, it has a lot of similarities to the post-1911 breakup of Standard Oil.”

Their reaction is very similar to what you are currently thinking.

“What is this dude talking about?!”

In this post, I will:

1. Compare the political climate of the early 20th century to the present to show the parallels.

2. I will show you that during the early 1900s, while our domestic oil giant was under attack in Washington D.C., overseas national energy champions were supported and capitalized by their respective governments. The same can be said today.

3. Similar to a century ago, the industry responded with major investments internationally and there are signs of that occurring today.

4. This is a foundational why I think offshore will make a comeback.

So by the time you are done reading this maybe you will have the same reaction everyone else did, “I can see that.”

Let’s Begin!

The political environment of the early 20th century was very similar to the present.

Say what you want about ESG, scope 1, 2, 3, 4, 5, 6, etc. but one thing they did was provide a narrative in which the industry could focus on capital returns to shareholders in lieu of growth.

This dynamic has led to some of the strongest returns in industry history, no matter how you want to measure it (ROA, ROE, ROIC, ROCE, etc)

In the world of cyclical, there is nothing “new.”

I harken back to a prior cycle.

Not the 2000s, not the 1970s.

I go back 100 years to just after the break up of Standard Oil on the eve of the First World War.

Standard Oil was NOT broken up because they exercised monopolistic powers to “price gauge.”

From its creation to its breakup kerosene prices actually fell by 2/3rds.

Standard was broken up because the median voter was attracted to the Progressive Party which gained a majority in Washington and decided to use not a new piece of legislation but a 20-year-old law called the Sherman Anti-Trust Act.

ESG/Climate Policy/Environmentalism is a tricky subject. Still, I always come back to the relationship that the median voter favors a push toward environmentalism when energy prices are low and vice versa. Politicians are merely responding to that median voter.

Alaska, the N. Sea and non-OPEC production culminated in a secular decline in energy affording the median voter to make room for environmental policies (ie. 1990s Bush & Clinton era Clean Air Acts).

N. American shales once again brought about an era of cheap energy giving rise to recent policies in Washington (ie Inflation Reduction Act, methane emissions tax, and windfall profit taxes).

There is no right, there is no wrong, there are merely tradeoffs and consequences.

During the early 1900s, while our domestic oil giant was under attack in Washington D.C., overseas national energy champions were supported and capitalized by their respective governments. The same can be said today.

The chart below doesn’t give it justice due to the log-scaled effect but the biggest descendant of the Trust, Standard of New Jersey emerged from the breakup a shell of its former self.