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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Ronald Reagan once famously quipped, "When you can't make them see the light, make them feel the heat." Now that the federal regulatory drive to boost companies' performance on environmental, social and governance (ESG) issues is well underway, a growing number of Oil and Gas companies are feeling the heat and seeing the light, judging from conference presentations last week at an energy and ESG conference sponsored by EnerCom Incorporated (Denver, Colorado).
Last month, the U.S. Securities and Exchange Commission (SEC) issued a draft rule requiring greenhouse gas disclosures by publicly traded companies. For more on that, see March 23, 2022, article - Energy, Business Groups Slam SEC's GHG Disclosure Draft Rule. And last November, the U.S. Environmental Protection Agency (EPA) issued a draft rule that would reduce methane emissions from oil and gas operations. For more on that, see November 3, 2021, article - Biden Plan to Cut Methane Emissions Would Hit Oil & Gas Industry.
Either rule might undergo substantial change during the public comment period. Either could be overturned by litigation. And a Republican capture of the House and Senate this November could throw roadblocks in front of both proposed rules.
But for now, those draft rules appear to be changing the way oil and gas companies view ESG issues. And those draft rules are running in parallel with investor expectations. Combined, they are changing hearts and minds in the Oil Patch.
The change has been most evident in the quarterly earnings calls large, publicly traded oil and gas companies have with investment analysts. For more than a year, each of those quarterly calls have devoted a sizable percentage of time on ESG issues--such as which metrics were being used to assess performance and how a company was performing against goals. So yes, it appears the new GHG era has been recognized by Big Oil companies such as Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), Chevron Corporation (NYSE:CVX) (San Ramon, California), Shell plc (NYSE:SHEL) (London, England) and BP Plc. (NYSE:BP) (London England).
But it has been less clear whether and to what degree smaller and private oil and gas companies have accepted and embraced the new era of heightened awareness and action on ESG issues. And, the question remains whether pursuing ESG goals leads to better outcomes.
An enthusiastic "yes" was offered by one private company speaking at the EnerCom Dallas event: Great Western Petroleum Limited Liability Company (Denver, Colorado), the largest private operator in Colorado's Denver-Julesburg Basin (D-J).
Susan Fakharzadeh, Great Western's senior vice president for sustainability and government affairs, told conference attendees April 6 that the company has tripled production of oil, natural gas and natural gas liquids since 2016 while developing and implementing a rigorous ESG strategy. That strategy "has earned us the social license to operate (SLTO) while navigating some of the country's most challenging regulatory requirements." The company's ESG strategy combines:
Specifically, she told the roughly 350 in-person attendees that the environmental portion of Great Western's ESG strategy included:
As a result, she said, Great Western has one of the lowest GHG intensities in the D-J basin, and it has significantly reduced VOC emissions. She also showed attendees how specific technology advances, such as fly-over emissions monitoring, link to and support the achievement of business aims.
In closing, Fakharzadeh urged attendees to develop, implement and practice an integrated ESG strategy that:
She also cited favorable public opinion polling about the company's operations.
In opening the EnerCom Dallas conference April 6, EnerCom President Aaron Vandeford rhetorically asked, and briefly answered, a few basic questions about ESG for oil and gas companies:
Investors also should seek oil and gas companies that have "aligned and integrated their operating, financial and hedging strategies" while also making sure management has the "right business motivations." That last point has been raised repeatedly by investors who didn't want oil and gas company executives rewarded for production growth. That structure incentivizes management to pursue undesirable results, like overpaying for acreage and adding production at any cost. Rather, investors have sought, and gained, a commitment to "capital discipline," meaning shareholder returns are prioritized over other claims on corporate cash flow. That has led to tens of billions of dollars of stock dividend increases, stock buybacks and special dividends to shareholders in recent years.
In recent years, Vandeford continued, the evidence has shown that companies with a strong ESG agenda have stronger growth in revenue and profits, partly because they have lowered energy and water consumption. As well, oil and gas companies with strong ESG performance are better able to attract and retain employees, win government support for projects and steer clear of regulatory or legal entanglements.
Oil and gas financial returns have soared during the just-completed quarter, and large institutional investors have doubled their stake in the industry over the last six months, to an estimated $70 billion, he said. "Money talks, and companies must listen," Vandeford added. Increasingly, investors are seeking oil and gas companies that have established clear ESG goals and are performing against benchmarks.
"The alpha dogs of institutional investing are walking back anti-fossil fuel rhetoric," he continued, citing a comment from asset manager BlackRock Incorporated (NYSE:BLK) (New York, New York) Chief Executive Officer Larry Fink earlier this year: "We will continue to invest in and support fossil fuel companies...We have not and will not boycott energy companies." Only poorly performing ones, apparently.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
Last month, the U.S. Securities and Exchange Commission (SEC) issued a draft rule requiring greenhouse gas disclosures by publicly traded companies. For more on that, see March 23, 2022, article - Energy, Business Groups Slam SEC's GHG Disclosure Draft Rule. And last November, the U.S. Environmental Protection Agency (EPA) issued a draft rule that would reduce methane emissions from oil and gas operations. For more on that, see November 3, 2021, article - Biden Plan to Cut Methane Emissions Would Hit Oil & Gas Industry.
Either rule might undergo substantial change during the public comment period. Either could be overturned by litigation. And a Republican capture of the House and Senate this November could throw roadblocks in front of both proposed rules.
But for now, those draft rules appear to be changing the way oil and gas companies view ESG issues. And those draft rules are running in parallel with investor expectations. Combined, they are changing hearts and minds in the Oil Patch.
The change has been most evident in the quarterly earnings calls large, publicly traded oil and gas companies have with investment analysts. For more than a year, each of those quarterly calls have devoted a sizable percentage of time on ESG issues--such as which metrics were being used to assess performance and how a company was performing against goals. So yes, it appears the new GHG era has been recognized by Big Oil companies such as Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), Chevron Corporation (NYSE:CVX) (San Ramon, California), Shell plc (NYSE:SHEL) (London, England) and BP Plc. (NYSE:BP) (London England).
But it has been less clear whether and to what degree smaller and private oil and gas companies have accepted and embraced the new era of heightened awareness and action on ESG issues. And, the question remains whether pursuing ESG goals leads to better outcomes.
An enthusiastic "yes" was offered by one private company speaking at the EnerCom Dallas event: Great Western Petroleum Limited Liability Company (Denver, Colorado), the largest private operator in Colorado's Denver-Julesburg Basin (D-J).
Susan Fakharzadeh, Great Western's senior vice president for sustainability and government affairs, told conference attendees April 6 that the company has tripled production of oil, natural gas and natural gas liquids since 2016 while developing and implementing a rigorous ESG strategy. That strategy "has earned us the social license to operate (SLTO) while navigating some of the country's most challenging regulatory requirements." The company's ESG strategy combines:
- Operational best practices to reduce emissions and overall footprint
- Initiating grassroots social and diversity programs; and
- Forward-thinking influence and integration of governance policies
Specifically, she told the roughly 350 in-person attendees that the environmental portion of Great Western's ESG strategy included:
- Voluntary reduction of greenhouse gas (GHGs) emissions and volatile organic compounds (VOCs) in addition to meeting regulatory requirements
- Innovations in facility design that minimize visual footprint and tank emissions
- Electrification of compression: their new pad design is 100% electric compression capable (vs 50% in traditional design)
- Elimination of pneumatic controller/pump emissions
- Reducing truck trips by an average of about 60,000 annually for 2019 and 2020, which eliminates road congestion and wear and tear
- Eliminating flaring
- Improving safety performance
- Utilizing green completions that use electric frac fleets
- Holding quarterly in-person community information sessions since 2019
- Producing bilingual, site-specific websites for current drilling pads
- Publishing a monthly stakeholder newsletter that is distributed to 5,000+, including elected officials, mineral owners and community partners
As a result, she said, Great Western has one of the lowest GHG intensities in the D-J basin, and it has significantly reduced VOC emissions. She also showed attendees how specific technology advances, such as fly-over emissions monitoring, link to and support the achievement of business aims.
In closing, Fakharzadeh urged attendees to develop, implement and practice an integrated ESG strategy that:
- Avoids the risk of "greenwashing" by quantifying deliverables that are meaningful to your stakeholders; this is not a one-size-fits-all game
- Targets business goals and allows for efficient capital allocation
- Compounds efficiencies in the allocation of resources, management of compliance risk, and enhances capital deployment decisions
- Actualizes social capital to coalition-building and positive community influence
- Elevates your governance into external affairs with proactive technologies that drive policy, as opposed to reacting to legislated innovation
She also cited favorable public opinion polling about the company's operations.
In opening the EnerCom Dallas conference April 6, EnerCom President Aaron Vandeford rhetorically asked, and briefly answered, a few basic questions about ESG for oil and gas companies:
- "Does ESG disclosure even matter for an independent oil and gas company? Short Answer: Yes! It is an access to capital issue today."
- "Is ESG disclosure just for the public companies? Short Answer: No! As the universe of stakeholders expand, so do the expectations on all companies."
- "Does the market have the same expectations for all size companies? Short Answer: No!"
- What ESG metrics really matter? Short Answer: Take a holistic approach with the "E" the "S" and the "G" factors all carrying weight."
Investors also should seek oil and gas companies that have "aligned and integrated their operating, financial and hedging strategies" while also making sure management has the "right business motivations." That last point has been raised repeatedly by investors who didn't want oil and gas company executives rewarded for production growth. That structure incentivizes management to pursue undesirable results, like overpaying for acreage and adding production at any cost. Rather, investors have sought, and gained, a commitment to "capital discipline," meaning shareholder returns are prioritized over other claims on corporate cash flow. That has led to tens of billions of dollars of stock dividend increases, stock buybacks and special dividends to shareholders in recent years.
In recent years, Vandeford continued, the evidence has shown that companies with a strong ESG agenda have stronger growth in revenue and profits, partly because they have lowered energy and water consumption. As well, oil and gas companies with strong ESG performance are better able to attract and retain employees, win government support for projects and steer clear of regulatory or legal entanglements.
Oil and gas financial returns have soared during the just-completed quarter, and large institutional investors have doubled their stake in the industry over the last six months, to an estimated $70 billion, he said. "Money talks, and companies must listen," Vandeford added. Increasingly, investors are seeking oil and gas companies that have established clear ESG goals and are performing against benchmarks.
"The alpha dogs of institutional investing are walking back anti-fossil fuel rhetoric," he continued, citing a comment from asset manager BlackRock Incorporated (NYSE:BLK) (New York, New York) Chief Executive Officer Larry Fink earlier this year: "We will continue to invest in and support fossil fuel companies...We have not and will not boycott energy companies." Only poorly performing ones, apparently.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
