When Royal Dutch Shell sold its stake in the Umuechem oil field in Nigeria last year, it was a step forward on paper for the company’s climate ambitions: Shell was able to clear its holdings, raise money to invest in cleaner technologies and move towards from its target of net zero emissions by 2050.
However, as soon as Shell departed, the oil field underwent a change so dramatic that it was detected from space: a wave of flaring or the wasteful burning of excess gas in towering columns of smoke and fire. Flaring releases both greenhouse gases and soot for the Earth into the atmosphere.
Around the world, many of the largest energy companies are expected to sell more than $100 billion worth of oil fields and other polluting assets in an effort to reduce their emissions and advance toward their corporate climate goals. However, they often sell to buyers who reveal little about their operations, have made little or no commitment to fight climate change, and are committed to ramping up fossil fuel production.
New research released Tuesday showed that of the 3,000 oil and gas deals closed between 2017 and 2021, more than twice as many assets involved those from operators with net-zero liabilities to those who didn’t, than vice versa. That raises concerns that assets will continue to be polluted, perhaps even at a greater rate, but out of the public eye.
“You can move your assets to another company and take the emissions off your own books, but that won’t have a positive impact on the planet if it’s done without any safeguards,” said Andrew Baxter, head of the energy transition team at Environmental Defense Fund, which performed the analysis.
Transactions like these expose the messy underside of the global energy transition away from fossil fuels, a shift that is imperative to avoiding the most catastrophic effects of climate change.
In the four years prior to the sale of Umuechem in Nigeria, satellites had not seen any routine flaring from the field, which Shell operated in the Niger Delta with European energy giants Total and Eni. But immediately after those companies sold the field to a private equity-backed company, Trans-Niger Oil & Gas, an operator with no set net-zero targets, flare levels quadrupled, according to data from the VIIRS satellite collected by EDF as part of the analysis. Trans-Niger said last year it plans to triple production on the field.
According to the EDF research, among the top buyers in recent years have been state oil and gas companies such as Indonesia’s Pertamina, Qatar Energy and China’s CNOOC, as well as Diversified Energy, an Alabama-based company that is developing tens of thousands of aging oil and gas wells in the US. Appalachia.
Other top buyers were a handful of lesser-known companies. And as a sign of the difficulty of tracking these trades, the acquirers in many other deals were unknown. Overall, the survey showed that the number of transactions that involved moving fossil fuel assets from public to private ownership accounted for the largest share of deals, exceeding the number of transfers from private to public by 64 percent.
In response to questions, Shell said it was looking forward to the full EDF report. The Dutch company has said divestments are “an important part of our efforts to refresh and upgrade our portfolio” as it aims to achieve net-zero emissions, which refers to a company’s pledge to stop adding greenhouse gases to the Earth’s atmosphere. than the amount it takes out.
Eni spokeswoman Marilia Cioni referred questions to the local operator, adding that it does not view asset sales as a tool to reduce emissions. Total and Trans-Niger Oil & Gas did not respond to requests for comment Monday.
This phenomenon, where the production of emissions that cause climate change is transferred from one company to another, is also hindering the clean-up of fossil fuel infrastructure.
In July 2021, the Apache oil and gas drill, struggling with operations in Texas’ vast Permian Basin, sold about 2,100 wells to a little-known Louisiana operating company, Slant Energy, according to state and federal filings analyzed by ESG Dynamics, a data company about sustainability.
About 40 percent of those wells were inactive. Before Apache sold the lot, the Houston-based company had plugged an average of 169 wells a year to prevent toxic chemicals from leaking into groundwater or from releasing methane, a potent greenhouse gas, into the atmosphere. That pace would have meant Apache could have closed its backlog of idle wells in about nine years.
Since Slant took over, it has reportedly closed only two wells. At that rate, it would take 120 years to plug all of the current inactive wells.
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The Environmental Protection Agency estimates that any idle, disconnected source produces greenhouse gas emissions equivalent to between 17,000 and 50,000 miles driven by an average gasoline passenger vehicle. According to industry figures, there are already 1.6 million unconnected wells in the United States, and an increasing number of them are abandoned.
Slant spokesman Sean P. Gill said EDF’s numbers “didn’t seem accurate,” without providing further details. Slant had only recently acquired those wells and “continues to evaluate the economic development of the assets in an environmentally sound manner,” he added.
Apache said it was not valid to assume that a company buying its resources would have the same scheme for connecting them.
The concerns raised by emissions being transferred to various companies also put a renewed focus on global banking firms that play a critical role in facilitating mergers, acquisitions and other transactions of coal, oil and gas. Climate activists calling for fossil fuel divestments have so far focused on banks’ direct financing of fossil fuel projects. But the recent examples show that their M&A activities can also have significant climate impacts.
Shell, a publicly traded company, said it discloses emissions from both its operations and the oil and gas it produces, has corporate goals for reducing greenhouse gas emissions and is committed to zero flaring from its operations. . But when it sells an oil or gas field, those goals and commitments for that field can fall away.
The new owners of the Umuechem project have said they will instead focus on ramping up production quickly, which could put a strain on the oilfield’s facilities and require significant amounts of flaring. That’s because rapidly increasing oil production often also releases more natural gas, overwhelming the field’s ability to collect the extra gas.
As major oil and gas producers sell more fossil fuels, experts and campaigners say, companies and their bankers must enter into contracts or agreements that commit buyers to comparable disclosures and emissions reduction targets. And in the case of oil and gas wells and other assets that are nearing the end of their useful life, they argue that companies should not be allowed to transfer cleanup responsibilities to operators who may not have the resources or intent to operate in the siding to invest the work.
Kathy Hipple, a finance professor 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 scrutinize any sale and challenge a transaction if environmental or cleanup obligations or targets are not. to be. t responsible.
She pointed to Diversified, a London-listed operator, which in recent years has become the largest owner of oil and gas wells in the United States by buying up aging wells, which Prof. Hipple said uses accounting methods that could potentially cut cleanup costs. could increase in the future. For example, Diversified has said its wells will be productive until 2095, allowing it to defer its cleanup costs for decades.
Diversified said its business model “takes often overlooked or neglected assets, optimizes production, improves environmental performance and retires responsibly.” It said it aims to achieve net-zero emissions by 2040.