Private equity-backed drillers under emissions scrutiny

US private equity-backed upstream independents are among the worst offenders when it comes to methane emissions, according to a recent report.

While the biggest oil producers, including ExxonMobil and Chevron, have drawn most of the flak from climate campaigners and shareholders over emissions, smaller firms — often backed by private equity — have largely flown under the radar.

But they may attract closer attention in future following a joint report by sustainable investment advocacy group Ceres and the Clean Air Task Force, an environmental group. It found that while the 195 smallest producers in the US together account for just 9pc of production, they are responsible for 22pc of total reported emissions. The study also reinforces concerns that oil firms "greening up" by selling assets does little to help the climate when the emissions are just transferred to another operator that may be less environmentally minded.

Privately held Hilcorp Energy had the highest methane emissions, even though it is only the 13th-largest gas producer. Moreover, its methane intensity was about six times the average of the top 30 producers. Private equity-linked operators Flywheel Energy, Terra Energy, Blackbeard Operating and Scout Energy were also among the top 10 emitters (see chart). "We're already hearing from some of the investors that we work with — who as asset owners actually provide a lot of capital for the private-equity firms — that this has really raised their interest and also their concerns," Ceres senior director for oil and gas Andrew Logan says.

The report uses data that companies are required to submit to US environmental agency the EPA, and analysed the emissions — including methane, nitrous oxide and CO2 — of almost 300 US oil and gas producers. It is based on 2019 data focused on onshore oil and natural gas production.

It also reveals big differences between companies of a similar size when it comes to emissions. ExxonMobil was responsible for more than double the total production-associated greenhouse gas (GHG) emissions of the next-largest operator nationwide, despite its oil and gas output being less than a fifth higher. Among the 20 biggest producers, the highest methane intensity was 34 times greater than the lowest, and the highest GHG intensity was 24 times more than the lowest.

Pneumatic controllers, used to control valves at sites, were responsible for 54pc of reported methane emissions. Methane is a powerful GHG that contributes to global warming at a rate more than 80 times that of CO2.

Biden his time The administration of President Joe Biden plans to revive oil and gas methane regulations that former president Donald Trump dismantled last year. They would force the industry to directly control emissions of methane from new wells, gas processing plants and pipelines. Flaring and incinerating gas accounted for 41pc of CO2 emissions, the analysis shows.

Hilcorp, which has a history of snapping up legacy oil and gas assets, takes issue with the report. "The estimates do not take into account any of the modernisation of equipment or operational improvements that Hilcorp routinely implements when we acquire legacy assets," the firm says. "This is a critical flaw in the study's approach, particularly for companies like us where making investments to responsibly enhance production and extend the life of older assets is central to what we do." The firm bought BP's Alaska assets for $5.6bn in 2019.

ExxonMobil says the report does not reflect the "significant progress'' made by the oil major in 2020, and that its emissions reduction plans for 2025 are set to be in line with the Paris agreement goals. Flywheel Energy, Terra Energy, Scout Energy and Blackbeard Operating did not respond to requests for comment.

By Stephen Cunningham

Top US oil firm methane emitters

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