Released August 31, 2020 | sugar land
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A growing number of oil and gas producers, pipelines and terminals companies have adopted or are considering adopting policies to improve their performance on environment, sustainability and governance (ESG) issues, but speakers who addressed the recent The Oil & Gas Conference, organized by EnerCom Incorporated (Denver, Colorado), agreed that the "G" was every bit as important as the "E" and the "S" in ESG.
"ESG is becoming more important for oil and gas companies," David Preng, founder and president of executive search firm Preng and Associates (Houston, Texas), said August 17. "ESG can't be ignored because investors are demanding it."
Preng spoke on a keynote panel discussion of ESG. Another full session was devoted to an executive at DCP Midstream L.P. (NYSE:DCP) (Denver, Colorado) discussing how his company has benefitted from adopting ESG metrics. In between, various speakers at the three-day event called out their ESG credentials.
In remarks opening the virtual conference, Aaron Vandeford, EnerCom's president, noted that conversations about ESG are becoming more commonplace among oil and gas companies. "ESG is here to stay," he said. "We have to join the dialog. Many firms have been practicing ESG, but we as an industry need to do a better job telling our story."
Chris Hughen, Ph.D., an associate professor of finance at the Daniels College of Business at the University of Denver (Denver), said equity investors were increasingly looking at new metrics to assess companies, and ESG was one of those newer metrics, alongside more traditional financial metrics like cash flow and earnings per share. "The 'G' is the most quantifiable metric in ESG and it may be where you can create the most value. Good governance will take care of the 'E' and 'S' because good governance is good management," he said in a panel. He recommended oil and gas companies interested in adopting an ESG policy start by assessing their governance practices, including diversity and executive compensation.
"We're at a fundamental inflection point now," Hughen continued. "Energy companies need to show they are pursuing ESG. It is essential that companies be able to demonstrate superior performance compared to their peers."
Performing well on ESG measures will increase the likelihood that a company will earn and keep a social license to operate (SLTO), speakers agreed. For more on SLTO, see August 19, 2019, article - Oil Executives Pledge Financial Probity, Environmental Protection at Denver Conference.
Ross Campbell, director of responsible investing at Barrow, Hanley, Mewhinney & Strauss L.L.C. (Houston, Texas), a value-oriented investment firm, noted that many oil and gas companies have executive compensation plans tied to production. Sharing a virtual podium with Preng and Hughen, Campbell said, "If you change your compensation structure to reward cash flow and return on invested capital, rather than growth for growth's sake, that will signal to investors your value system and your strategy."
"Compensation drives behavior," added Hughen of the University of Denver.
Panelists who spoke August 17 agreed that ESG was still an evolving field, where some differences of opinion existed about the right metrics. But several agreed that the Sustainability Accounting Standards Board (SASB) (San Francisco, California), a sustainability counterpart to the long-established Financial Accounting Standards Board (FASB) (Norwalk, Connecticut), was a good place to start. SASB was founded in 2011 to provide companies with sustainability accounting standards.
"We're a member of SASB," commented Campbell of Barrow Hanley. "It's a good framework." Hughen of the University of Denver agreed: "SASB is headed in the right direction, though right now its metrics are a glorified mess."
Speaking on another panel on a different day, J. David Anderson, a senior equity analyst at Barclays Capital (London, England), said while some U.S.-based firms "roll their eyes" at the mention of ESG, "if you spend a week in Europe, you'll get a very different perspective." He pointed to the recent announcement by BP plc (NYSE:BP) (London), that it was trimming its oil and gas operations and investing in hydrogen as part of its longtime commitment to sustainability.
Schlumberger Limited (NYSE:SLB) (Houston, Texas) is one of the few oilfield services firms that have adopted ESG metrics, the Barclays analyst told the EnerCom virtual conference August 18. He added that other oilfield services firms have bought into ESG, but they have questions about the metrics.
"If you can't measure it, you can't manage it," Anderson said. "A lot of ESG is common sense and good management. I see ESG as a litmus test for strong management."
Another EnerCom speaker, Bill Johnson, group vice president and chief transformation officer at DCP Midstream L.P., said his company has benefitted greatly from adopting ESG principles. "ESG principles are enhancing our culture and helping us live our purpose," he said August 19.
He said about 85% of the companies in the Standard & Poor's 500 published a sustainability or corporate social responsibility report in 2017, up from about 20% in 2011. "It's important to investors that companies practice 'conscious capitalism.' "
Conscious that he was speaking to a virtual audience with a lot of financial analysts and bankers, Johnson talked about how ESG principles, coupled with a wider use of advanced technology, is helping the company reinvent itself by cutting waste, improving safety, reducing risk and increasing cash flow.
One aspect of what Johnson called the "DCP 2.0" transformation initiative was using advanced technology to more rapidly detect pipeline leaks. By mounting a spectrometer on a small plane, DCP is inspecting far more pipeline miles for far less than traditional measures, like having a line worker drive a pipeline route and take leak measurements. A single day of flights can cover 100 times the area covered the traditional leak-measurement measures.
"Keeping gas in the pipeline is an important part of our business," Johnson told the EnerCom virtual audience. Advanced technology like spectrometers enables the company to respond to leak detections three to six months faster than the traditional approach. The company has spotted about 100 leaks using spectrometers.
DCP started using plane-mounted spectrometers in the Permian Basin in 2019 and the Denver-Julesburg Basin in 2020. So far, they have used that advanced technology to survey about 14,500 miles of pipeline and approximately 120 facilities in the Permian Basin. In the D-J Basin, DCP has used spectrometers to inspect about 3,500 miles of pipeline and 30 facilities in the area.
Johnson said advanced technology can improve business operations while protecting the environment and furthering sustainable operations. "The DCP 2.0 initiative is using advanced technology to achieve better reliability and safety, optimize our assets, produce higher margins and lower our costs. ESG is an important part of DCP 2.0. ESG is becoming standard, it's important to investors, and it's the right thing to do. The time is now."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
"ESG is becoming more important for oil and gas companies," David Preng, founder and president of executive search firm Preng and Associates (Houston, Texas), said August 17. "ESG can't be ignored because investors are demanding it."
Preng spoke on a keynote panel discussion of ESG. Another full session was devoted to an executive at DCP Midstream L.P. (NYSE:DCP) (Denver, Colorado) discussing how his company has benefitted from adopting ESG metrics. In between, various speakers at the three-day event called out their ESG credentials.
In remarks opening the virtual conference, Aaron Vandeford, EnerCom's president, noted that conversations about ESG are becoming more commonplace among oil and gas companies. "ESG is here to stay," he said. "We have to join the dialog. Many firms have been practicing ESG, but we as an industry need to do a better job telling our story."
Chris Hughen, Ph.D., an associate professor of finance at the Daniels College of Business at the University of Denver (Denver), said equity investors were increasingly looking at new metrics to assess companies, and ESG was one of those newer metrics, alongside more traditional financial metrics like cash flow and earnings per share. "The 'G' is the most quantifiable metric in ESG and it may be where you can create the most value. Good governance will take care of the 'E' and 'S' because good governance is good management," he said in a panel. He recommended oil and gas companies interested in adopting an ESG policy start by assessing their governance practices, including diversity and executive compensation.
"We're at a fundamental inflection point now," Hughen continued. "Energy companies need to show they are pursuing ESG. It is essential that companies be able to demonstrate superior performance compared to their peers."
Performing well on ESG measures will increase the likelihood that a company will earn and keep a social license to operate (SLTO), speakers agreed. For more on SLTO, see August 19, 2019, article - Oil Executives Pledge Financial Probity, Environmental Protection at Denver Conference.
Ross Campbell, director of responsible investing at Barrow, Hanley, Mewhinney & Strauss L.L.C. (Houston, Texas), a value-oriented investment firm, noted that many oil and gas companies have executive compensation plans tied to production. Sharing a virtual podium with Preng and Hughen, Campbell said, "If you change your compensation structure to reward cash flow and return on invested capital, rather than growth for growth's sake, that will signal to investors your value system and your strategy."
"Compensation drives behavior," added Hughen of the University of Denver.
Panelists who spoke August 17 agreed that ESG was still an evolving field, where some differences of opinion existed about the right metrics. But several agreed that the Sustainability Accounting Standards Board (SASB) (San Francisco, California), a sustainability counterpart to the long-established Financial Accounting Standards Board (FASB) (Norwalk, Connecticut), was a good place to start. SASB was founded in 2011 to provide companies with sustainability accounting standards.
"We're a member of SASB," commented Campbell of Barrow Hanley. "It's a good framework." Hughen of the University of Denver agreed: "SASB is headed in the right direction, though right now its metrics are a glorified mess."
Speaking on another panel on a different day, J. David Anderson, a senior equity analyst at Barclays Capital (London, England), said while some U.S.-based firms "roll their eyes" at the mention of ESG, "if you spend a week in Europe, you'll get a very different perspective." He pointed to the recent announcement by BP plc (NYSE:BP) (London), that it was trimming its oil and gas operations and investing in hydrogen as part of its longtime commitment to sustainability.
Schlumberger Limited (NYSE:SLB) (Houston, Texas) is one of the few oilfield services firms that have adopted ESG metrics, the Barclays analyst told the EnerCom virtual conference August 18. He added that other oilfield services firms have bought into ESG, but they have questions about the metrics.
"If you can't measure it, you can't manage it," Anderson said. "A lot of ESG is common sense and good management. I see ESG as a litmus test for strong management."
Another EnerCom speaker, Bill Johnson, group vice president and chief transformation officer at DCP Midstream L.P., said his company has benefitted greatly from adopting ESG principles. "ESG principles are enhancing our culture and helping us live our purpose," he said August 19.
He said about 85% of the companies in the Standard & Poor's 500 published a sustainability or corporate social responsibility report in 2017, up from about 20% in 2011. "It's important to investors that companies practice 'conscious capitalism.' "
Conscious that he was speaking to a virtual audience with a lot of financial analysts and bankers, Johnson talked about how ESG principles, coupled with a wider use of advanced technology, is helping the company reinvent itself by cutting waste, improving safety, reducing risk and increasing cash flow.
One aspect of what Johnson called the "DCP 2.0" transformation initiative was using advanced technology to more rapidly detect pipeline leaks. By mounting a spectrometer on a small plane, DCP is inspecting far more pipeline miles for far less than traditional measures, like having a line worker drive a pipeline route and take leak measurements. A single day of flights can cover 100 times the area covered the traditional leak-measurement measures.
"Keeping gas in the pipeline is an important part of our business," Johnson told the EnerCom virtual audience. Advanced technology like spectrometers enables the company to respond to leak detections three to six months faster than the traditional approach. The company has spotted about 100 leaks using spectrometers.
DCP started using plane-mounted spectrometers in the Permian Basin in 2019 and the Denver-Julesburg Basin in 2020. So far, they have used that advanced technology to survey about 14,500 miles of pipeline and approximately 120 facilities in the Permian Basin. In the D-J Basin, DCP has used spectrometers to inspect about 3,500 miles of pipeline and 30 facilities in the area.
Johnson said advanced technology can improve business operations while protecting the environment and furthering sustainable operations. "The DCP 2.0 initiative is using advanced technology to achieve better reliability and safety, optimize our assets, produce higher margins and lower our costs. ESG is an important part of DCP 2.0. ESG is becoming standard, it's important to investors, and it's the right thing to do. The time is now."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
