Since the Trump administration came on board in January 2017, and pushed for renewed exploration of fossil fuels, crude oil prices have risen to almost $69 a barrel from around $52 a barrel, a 32% jump. Despite that, a new study by the Institute for Energy Economics and Financial Analysis (IEEFA) finds that fossil fuel-based energy and related companies, such as Exxon and Chevron, are investments that have lost their glow.

The non-profit group, IEEFA, whose mission is to ”accelerate the transition to a diverse, sustainable and profitable energy economy,” noted that “a new paradigm is emerging: Cash, revenue, and profits matter, and risks cannot be ignored. Fossil fuel companies are responding in different ways to this shift, some more responsibly than others. But some companies (and their investors) ignore what’s happening, and they do so at their peril.” The report was written by IEEFA Director of Finance Tom Sanzillo and IEEFA financial analyst Kathy Hipple.

An evaluation on how the top companies in the S&P 500 have changed since 1980 bears out the group’s premise. In 1980, seven of the top 10 companies, ranked by market capitalization, in the S&P 500 index were energy companies: Exxon, Standard Oil Indiana, Schlumberger, Shell Oil, Mobil, Standard California and Atlantic Richmond.

In 2018, only ExxonMobil is in the top 10 companies, now led by Apple, Microsoft, Amazon, Facebook, Google, and Berkshire Hathaway.

Granted, many of those energy companies merged, but while ExxonMobil’s market cap today is $340 billion, Apple’s (and now Amazon) market cap is more than $1 trillion.

“The absence of a coherent and honest industrywide value thesis today places fossil fuel investors at a true disadvantage,” the authors state. “The days of powerhouse contributions by such companies to investment fund bottom lines are over. The risk of continuing to invest in coal, oil and gas are formidable and unlikely to abate.”

The analysts argue that the “sector’s decline exposed weaknesses in the old investment rationale, part of which was built on the assumption that a company’s value was determined by the reserves it owned.”

The shale-boom “encouraged” this metric, however; when fracking came in, it “undermined” the reserve-based investment methodology in two ways, the authors state. “First, it rendered old estimates of total global reserves meaningless, as supplies of oil and gas were now viewed as abundant and no longer in short supply (at least not on a time frame that mattered to Wall Street).”

Second, the authors state, a price collapse caused by the oversupply “destroyed the economic value of many reserves. Accounting rules define proven reserves in both geologic and economic terms: a reserve represents the amount of oil and gas that could be profitably extracted as expected future prices. But as expectations for future prices fell, many ‘reserves’ were seen as suddenly unprofitable, forcing the industry to write off many of them as worthless.”

Therefore, oil and gas became subject to the same short-term variables as other investments. “Cash is king now. And risk can no longer be ignored,” the authors wrote. The paper also found that the sector is “ill-prepared for a low-carbon future,” especially as the global economy moves toward less energy-intensive models of growth.

With the demise of the “old investment rationale,” the authors state that investment in these industries “requires deep expertise, strong judgment, a hefty appetite for risk and a robust understanding of how individual companies are positioned with respect to their competitors, both inside and outside the industry.”

With that, the authors state, “Blue-chip stocks with stable returns are far more appealing, and — simply put — coal, oil and gas equities are no longer worth the risk.” The nonprofit institute is funded by grants, including from the Rockefeller Family Fund, Energy Foundation and Rockefeller Brothers Fund.

Ginger Szala is executive managing editor of Investment Advisor. She can be reached at gszala@alm.com.