Oil giants sell dirty wells to buyers with more flexible climate goals: study

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 properties, raise money to invest in cleaner technologies and move towards its goal of net-zero emissions by 2050.

As soon as Shell left, however, the oil field underwent a change so significant that it was detected from space: an increase in flaring or the unnecessary burning of excess gas in towering plumes of smoke and fire. Burning emits planet-warming greenhouse gases, as well as soot, 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 their corporate climate goals. Yet they often sell to buyers who reveal little about their operations, have made few or no promises to combat climate change, and are committed to increasing fossil fuel production.

New research to be published Tuesday showed that of 3,000 oil and gas deals made between 2017 and 2021, more than twice as many involved assets moving from operators with net-zero commitments to those without, than vice versa. That raises concerns that the assets will continue to pollute, perhaps even at a higher rate, but away from the public eye.

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

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

During the four years prior to the sale of Umuechem in Nigeria, satellites did not detect any routine burning at 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 declared net-zero targets, burning levels quadrupled, according to VIIRS satellite data collected by EDF as part of the analysis. Trans-Niger said last year that it intends to triple production in the field.

According to EDF research, major buyers in recent years have included state-owned oil and gas corporations such as Indonesia’s Pertamina, Qatar Energy and China’s CNOOC, as well as Diversified Energy, an Alabama-based company that has amassed tens of thousands of of old oil and gas wells in Appalachia.

Other major buyers included a handful of lesser-known companies. And in a sign of the difficulty of tracking these transactions, the acquirers in many other deals were not known. Overall, the study showed that the number of transactions that took fossil fuel assets from public to private ownership comprised the largest share of deals, exceeding the number of private-to-public transfers by 64 percent.

In response to questions, Shell said it looked forward to seeing the full report from EDF. The Dutch company has said that the divestments “are a key part of our efforts to renew and improve our portfolio” as it seeks to reach net-zero emissions, which refers to a corporate commitment not to add more greenhouse gases to the Earth’s atmosphere than the amount it puts out

Eni spokeswoman Marilia Cioni referred questions to the local operator, adding that she does not see the sale of assets 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 drive climate change are transferred from one company to another, is also making it difficult to clean up fossil fuel infrastructure.

In July 2021, oil and gas driller Apache, which had been struggling with its 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 sustainability data company.

About 40 percent of those wells were idle. Before Apache sold the lot, the Houston-based company was plugging an average of 169 wells a year to prevent them from leaching toxic chemicals into groundwater or emitting methane, a potent greenhouse gas, into the atmosphere. That pace would have meant Apache could finish plugging the backlog of idle wells in about nine years.

Since Slant took over, it has only capped two wells, according to the documents. At that rate, it would take 120 years to plug all the current inactive wells.

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

Slant spokesman Sean P. Gill said EDF’s figures “did not appear to be accurate”, without providing further details. Slant had recently taken over those wells and “continues to assess the economic development of the assets in an environmentally responsible manner,” he added.

Apache said it was invalid to assume that a company buying its wells would have the same timeline to plug them.

Concerns raised about emissions being transferred to different companies also put a renewed focus on global banking corporations that play a critical role in facilitating mergers, acquisitions and other coal, oil and gas transactions. Climate activists calling for divestment from fossil fuels have so far focused on direct financing of fossil fuel projects by banks. But recent examples show that its M&A business can also have significant climate consequences.

Shell, a publicly traded company, said it discloses emissions both from its operations and from the oil and gas it produces, has corporate targets to reduce greenhouse gas emissions and has committed to zero burning at all of its operations. . But when you sell an oil or gas field, those goals and commitments can go away for that field.

The new owners of the Umuechem project have said they will instead focus on rapidly ramping up production, which can overload oilfield facilities and require significant amounts of flaring. This is because rapidly increasing oil production often also 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 advocates say, companies and their bankers must enter into contracts or agreements that commit buyers to similar disclosures and emission reduction targets. And in the case of oil and gas wells and other assets nearing the end of their useful lives, they argue, corporations should not be allowed to transfer cleanup responsibilities to operators who may not have the resources or intention to invest in cleaning. works.

Kathy Hipple, a finance professor at the Bard MBA in Sustainability and a senior research analyst at the Ohio River Valley Institute, said one solution would be for auditors or regulators to start examining every sale and challenging a transaction if environmental obligations or objectives or cleaning are not met. t accounted for.

He pointed to Diversified, a London-listed operator that has in recent years become the largest owner of oil and gas wells in the United States by buying old wells, which Professor Hipple says uses accounting methods that potentially can add a lot to cleaning costs. in the future. For example, Diversified has said that its wells will be productive until 2095, allowing it to delay its cleanup costs for decades.

Diversified said its business model “takes assets that are often overlooked or neglected, optimizes production, improves environmental performance and disposes of them responsibly.” He said his goal was to achieve net zero emissions by 2040.

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