Oil giants are selling dirty wells to buyers with softer climate goals, study finds

Oil giants are selling dirty wells to buyers with softer climate goals, study finds

Oil giants are selling dirty wells to buyers with softer climate goals, study finds

When Royal Dutch Shell sold its stake in Nigeria’s Umuechem oil field last year, it was, on paper, a step forward for the company’s climate ambitions: Shell could clean up its holdings, raise funds to invest in cleaner technologies and move towards its goal of net zero emissions by 2050.

Upon Shell’s departure, however, the oilfield underwent a change so significant that it was detected from space: increased flaring, or the unnecessary burning of excess gas in towering columns of smoke and of fire. Flaring releases greenhouse gases that warm the planet, as well as soot, into the atmosphere.

Around the world, many of the biggest energy companies are expected to sell more than $100 billion worth of oilfields and other polluting assets in a bid to reduce their emissions and make progress on their climate goals. However, they frequently sell to buyers who disclose little about their operations, have made little or no commitments to address climate change, and are committed to increasing fossil fuel production.

New research to be published on Tuesday showed that of 3,000 oil and gas deals concluded between 2017 and 2021, more than twice as many assets involved transfers from operators with net zero liabilities to those without. not done, only the reverse. This raises fears that the assets will continue to pollute, perhaps even at a higher rate, but away from the public eye.

“You can transfer your assets to another company and take emissions off your own books, but that doesn’t equate to a positive impact on the planet if it’s done without any safeguards in place,” said Andrew Baxter, who runs the energy transition. team from the Environmental Defense Fund, who carried out the analysis.

Deals like these expose the messy undersides of the global energy transition away from fossil fuels, a shift that is imperative to avoid the most catastrophic effects of climate change.

For the four years before Umuechem was sold to Nigeria, satellites had spotted no routine flaring of the field, which Shell, along with European energy giants Total and Eni, operated in the Niger Delta. But immediately after those companies sold the field to a private equity-backed company, Trans-Niger Oil & Gas, an operator with no stated goal of net zero, flaring levels quadrupled, according to VIIRS satellite data collected. by EDF as part of the analysis. Trans-Niger said last year it intended to triple production on the ground.

According to EDF research, the main buyers in recent years have been state-owned oil and gas companies such as Pertamina in Indonesia, Qatar Energy and CNOOC in China, as well as Diversified Energy, an Alabama-based company that has raised dozens thousands of aging workers. oil and gas wells through Appalachia.

Other major buyers included a handful of lesser-known companies. And a sign of the difficulty of following these transactions, the buyers of many other transactions were not known. Overall, the study showed that the number of transactions that moved fossil fuel assets from public to private accounted for the largest share of transactions, exceeding the number of transfers from private to public by 64%.

In response to questions, Shell said it looked forward to seeing EDF’s full report. The Dutch company said the divestments “are a key part of our efforts to refresh and modernize our portfolio” as it seeks to achieve net zero emissions, referring to the company’s commitment not to add more greenhouse gases into the earth’s atmosphere than the amount it takes out.

Eni spokeswoman Marilia Cioni questioned the local operator and added that it did not see the sale of assets as an emissions reduction tool. Total and Trans-Niger Oil & Gas did not respond to requests for comment on Monday.

This phenomenon, where the production of emissions that cause climate change is shifted from one company to another, also hampers the cleanup of fossil fuel infrastructure.

In July 2021, oil and gas driller Apache, which had struggled with its operations in Texas’ vast Permian Basin, sold about 2,100 wells to a little-known Louisiana operating company, Slant Energy, the documents show. state and federal analyzed by ESG Dynamics. , a sustainability data company.

About 40% of these wells were inactive. Before Apache sold the land, the Houston-based company capped an average of 169 wells a year to prevent them from leaking toxic chemicals into groundwater or emitting methane, a potent greenhouse gas. , in the air. This pace would have meant that Apache could finish filling the backlog of inactive sinks in about nine years.

Since Slant took over, it has plugged only two wells, according to filings. At this rate, it would take 120 years to plug all currently inactive wells.

The Environmental Protection Agency estimates that each inactive, unplugged well causes greenhouse gas emissions equivalent to between 17,000 and 50,000 miles traveled by an average gas-powered passenger vehicle. There are already 1.6 million disconnected wells in the United States, according to industry counts, and a growing number of them are abandoned.

Slant spokesman Sean P. Gill said EDF’s numbers “didn’t appear to be accurate,” without providing further details. Slant had only recently taken over these wells and “continues to evaluate the economic development of the assets in an environmentally responsible manner,” he added.

Apache said it was not valid to assume that a company buying its wells would have the same timeline for plugging them.

Concerns over emissions transferred to different companies also focus on global banking firms that play a critical role in facilitating mergers, acquisitions and other coal, oil and gas related transactions. Climate activists calling for fossil fuel divestment have so far focused on direct bank financing of fossil fuel projects. But recent examples show that their M&A activities can also have significant climate consequences.

Shell, a publicly traded company, said it discloses emissions from its operations and the oil and gas it produces, has corporate goals to reduce greenhouse gas emissions and that it was committed to zero flaring in all of its operations. But when it sells an oil or gas field, these objectives and commitments may fall for this field.

The new owners of the Umuechem project have said they will instead focus on rapidly ramping up production, which can strain oilfield facilities and require significant amounts of flaring. Indeed, rapidly increasing oil production also often releases more natural gas, overwhelming the field’s ability to collect the additional gas.

As major oil and gas producers sell more fossil fuel assets, experts and activists say, companies and their bankers must strike deals or agreements that commit buyers to disclosures and reduction targets similar shows. And in the case of oil and gas wells and other end-of-life assets, they argue, companies should not be allowed to hand cleanup responsibilities to operators who may not have the resources or intention to invest in cleaning. work.

Kathy Hipple, professor of finance at the Bard MBA in Sustainability and senior research analyst at the Ohio River Valley Institute, said one solution would be for auditors or regulators to start reviewing every sale and challenging a transaction if bonds or environmental or cleaning objectives are not taken into account.

She pointed to Diversified, a London-listed operator, which has become the largest owner of oil and gas wells in the United States in recent years by buying up aging wells, which Professor Hipple says use accounting methods that can potentially push clean-up costs far. in the future. For example, Diversified said its wells would be productive until 2095, allowing it to delay its cleanup costs for decades.

Diversified said its business model “takes often overlooked or overlooked assets, optimizes production, improves environmental performance, and retires them responsibly.” He said he aims to achieve net zero emissions by 2040.

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