Released August 24, 2021 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Attendees at last week's annual oil & gas conference sponsored by EnerCom Incorporated (Denver, Colorado) were treated to literary quotes from William Shakespeare and Robert Frost, as well as a sports quote from hockey legend Wayne Gretzky, but the bottom line could be summed up in a less-lofty way: You can run, but you can't hide from climate risks and the environmental, social and governance (ESG) expectations of investors.
Speaking at "The Oil and Gas Conference 2021" last Tuesday, Jennifer Cogburn, head of natural gas in the Americas at Bloomberg L.P. (New York, New York), said the Oil & Gas Industry was in an existential crisis, invoking the famous "To be or not to be" speech in Hamlet. But an existential crisis was not necessarily a bad thing, she assured the audience: "Used wisely, an existential crisis can create a new paradigm."
Drilling activity by private oil & gas companies lifted rig counts in the first half of 2021, at a time when publicly traded companies were capital-constrained and practicing capital discipline, she said.
Since 2015, the world's largest international oil companies (IOCs) divested about $198 billion of assets, she said. This was partially in response for calls by large investors to return more capital to shareholders rather than putting it in the next risky drilling venture. Some of these IOCs plowed varying portions of those proceeds into "clean energy" investments, she noted.
Click on the image at right to see a graphic of asset divestments and clean energy investments of 10 international oil companies since 2015.
Private companies like institutional investors or private equity (PE) funds bought some of those assets, with an eye to flipping them in a few years. "We expect more of this to happen soon as (ESG) pressures (continue to) mount," the Bloomberg analyst told the conference August 17. Some of these "public-to-private" transactions were driven by "the belief that private ownership provides more freedom and less constraints" when compared with publicly traded companies, which must comply with an evolving slate of regulatory requirements--particularly from the U.S. Securities and Exchange Commission (SEC) (Washington, D.C.), which has begun a rulemaking on ESG disclosures for public companies.
"The main source of existential anxiety is the acknowledgement of risks, including climate litigation and SEC regulation," said Cogburn. "The sentiment around climate risks is changing very rapidly. The policy risks, at this point in time, are bigger than they have ever been."
The Bloomberg analyst invoked the poet Robert Frost's famous line--"Two roads diverged in a wood and I, I took the one less traveled by, and that has made all the difference"--in commenting: "While in the short term, a reactionary flight to the perceived freedoms of private (ownership) may seem like a good solution, and will likely offer greater returns for a certain period, the risk of it leading to a dead end is too big."
"A longer-term view, in my option," she continued, staying with the Frost poem, "is that we are heading into a new paradigm: having a healthy relationship with the public and finding new ways to be valuable. That will make all the difference."
She said Bloomberg sees a "big opportunity" for gas companies to create value by implementing a credible emissions transparency program. Gas producers and LNG firms "can capture greater global (LNG) market share by proving (they) can offer a lower-emission product, compared to the rest of the suppliers in the world."
Cogburn was joined on the dais by Project Canary Chief Executive Officer Chris Romer, who shared a quote from hockey legend Wayne Gretzky: "One of the skills in life is not to see where the puck is, but where's it's going and how fast."
And where the proverbial puck was going, he said, was ever-greater expectations, as well as regulatory requirements, that companies in the Oil & Gas Industry become more transparent about their carbon emissions and remediation plans.
Romer's company website said the company "delivers trusted and reliable, independent Energy ESG data. We are the leaders in the certification of responsible operations throughout the energy value chain and provide measurement-based emission profiles via continuous monitoring technology."
Speaking to investors in the audience, Romer said, "All of you own (oil & gas) assets which were not priced" with an eye to climate change. "The risks of your assets don't currently reflect climate risks. But the externalities of carbon are coming into the marketplace."
"Externalities" is a term most often used by economists when the price of a good does not fully reflect all of the attributes, impacts or risks of that good. Decades ago, that term was widely used in the Power Industry because the price of its fossil-fueled electricity at that time did not include remediating the environmental damage, including climate change, that were part of its generation of electricity.
Romer, who described himself as a "proud Democrat for fracking in Colorado, perhaps the last one," continued: "As soon as we bring the externalities (of oil & gas production) into the market, radically great capitalists like those in the audience are going to solve the (climate change) problem. That will make the Oil & Gas Industry a solution to climate change, not the problem."
He continued: "We've got to stop the BS that externalities don't matter. You can't have a system where a major risk is not priced into your balance sheet."
"We've got to get real about methane emissions," the Denver-based Romer told the EnerCom attendees. "We've got to stop the methane leaks. It's going to be expensive in certain basins, but it's going to come. The sooner we make this a reality, the more we can extend a company's social license to operate (SLTO). I'm sorry if some of you don't want to hear that."
He asserted that in the long run, "it's not going to make a difference whether you're a public or private company. The ESG risks at the facility level will be priced into the equation. No matter where you are, no matter what market you play in, investors want to know the climate and ESG risks of every pad, every compressor, everything from the drill bit to the burner tip."
He estimated there were about 400 institutional investors around the world who take climate and ESG risks very seriously. Private companies may, for the time being, be able to evade climate-related scrutiny by the SEC, Romer said. But a third panelist at the session remarked, "Private companies need to have good environmental metrics when they want to sell their investments."
In other words, private oil & gas companies may be able to evade climate-related disclosures in the short term, but that game can't continue forever.
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.
Speaking at "The Oil and Gas Conference 2021" last Tuesday, Jennifer Cogburn, head of natural gas in the Americas at Bloomberg L.P. (New York, New York), said the Oil & Gas Industry was in an existential crisis, invoking the famous "To be or not to be" speech in Hamlet. But an existential crisis was not necessarily a bad thing, she assured the audience: "Used wisely, an existential crisis can create a new paradigm."
Drilling activity by private oil & gas companies lifted rig counts in the first half of 2021, at a time when publicly traded companies were capital-constrained and practicing capital discipline, she said.
Since 2015, the world's largest international oil companies (IOCs) divested about $198 billion of assets, she said. This was partially in response for calls by large investors to return more capital to shareholders rather than putting it in the next risky drilling venture. Some of these IOCs plowed varying portions of those proceeds into "clean energy" investments, she noted.
Click on the image at right to see a graphic of asset divestments and clean energy investments of 10 international oil companies since 2015. Private companies like institutional investors or private equity (PE) funds bought some of those assets, with an eye to flipping them in a few years. "We expect more of this to happen soon as (ESG) pressures (continue to) mount," the Bloomberg analyst told the conference August 17. Some of these "public-to-private" transactions were driven by "the belief that private ownership provides more freedom and less constraints" when compared with publicly traded companies, which must comply with an evolving slate of regulatory requirements--particularly from the U.S. Securities and Exchange Commission (SEC) (Washington, D.C.), which has begun a rulemaking on ESG disclosures for public companies.
"The main source of existential anxiety is the acknowledgement of risks, including climate litigation and SEC regulation," said Cogburn. "The sentiment around climate risks is changing very rapidly. The policy risks, at this point in time, are bigger than they have ever been."
The Bloomberg analyst invoked the poet Robert Frost's famous line--"Two roads diverged in a wood and I, I took the one less traveled by, and that has made all the difference"--in commenting: "While in the short term, a reactionary flight to the perceived freedoms of private (ownership) may seem like a good solution, and will likely offer greater returns for a certain period, the risk of it leading to a dead end is too big."
"A longer-term view, in my option," she continued, staying with the Frost poem, "is that we are heading into a new paradigm: having a healthy relationship with the public and finding new ways to be valuable. That will make all the difference."
She said Bloomberg sees a "big opportunity" for gas companies to create value by implementing a credible emissions transparency program. Gas producers and LNG firms "can capture greater global (LNG) market share by proving (they) can offer a lower-emission product, compared to the rest of the suppliers in the world."
Cogburn was joined on the dais by Project Canary Chief Executive Officer Chris Romer, who shared a quote from hockey legend Wayne Gretzky: "One of the skills in life is not to see where the puck is, but where's it's going and how fast."
And where the proverbial puck was going, he said, was ever-greater expectations, as well as regulatory requirements, that companies in the Oil & Gas Industry become more transparent about their carbon emissions and remediation plans.
Romer's company website said the company "delivers trusted and reliable, independent Energy ESG data. We are the leaders in the certification of responsible operations throughout the energy value chain and provide measurement-based emission profiles via continuous monitoring technology."
Speaking to investors in the audience, Romer said, "All of you own (oil & gas) assets which were not priced" with an eye to climate change. "The risks of your assets don't currently reflect climate risks. But the externalities of carbon are coming into the marketplace."
"Externalities" is a term most often used by economists when the price of a good does not fully reflect all of the attributes, impacts or risks of that good. Decades ago, that term was widely used in the Power Industry because the price of its fossil-fueled electricity at that time did not include remediating the environmental damage, including climate change, that were part of its generation of electricity.
Romer, who described himself as a "proud Democrat for fracking in Colorado, perhaps the last one," continued: "As soon as we bring the externalities (of oil & gas production) into the market, radically great capitalists like those in the audience are going to solve the (climate change) problem. That will make the Oil & Gas Industry a solution to climate change, not the problem."
He continued: "We've got to stop the BS that externalities don't matter. You can't have a system where a major risk is not priced into your balance sheet."
"We've got to get real about methane emissions," the Denver-based Romer told the EnerCom attendees. "We've got to stop the methane leaks. It's going to be expensive in certain basins, but it's going to come. The sooner we make this a reality, the more we can extend a company's social license to operate (SLTO). I'm sorry if some of you don't want to hear that."
He asserted that in the long run, "it's not going to make a difference whether you're a public or private company. The ESG risks at the facility level will be priced into the equation. No matter where you are, no matter what market you play in, investors want to know the climate and ESG risks of every pad, every compressor, everything from the drill bit to the burner tip."
He estimated there were about 400 institutional investors around the world who take climate and ESG risks very seriously. Private companies may, for the time being, be able to evade climate-related scrutiny by the SEC, Romer said. But a third panelist at the session remarked, "Private companies need to have good environmental metrics when they want to sell their investments."
In other words, private oil & gas companies may be able to evade climate-related disclosures in the short term, but that game can't continue forever.
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.
