Investor demands for US shale producers to exercise drilling restraint as oil prices climb may inadvertently help the industry tackle the vexing question of how to meet calls for reduced emissions. While climate campaigners want the companies to keep the oil in the ground for the sake of the environment, shareholders are pushing higher returns over unchecked production growth.
"You have all investors asking for the same thing, whether they're financially minded or environmentally or both," says think-tank Carbon Tracker's head of climate, energy and industry research, Andrew Grant. "Not only do you emit less, but you have less risk of hanging on to stranded assets when the time comes."
Devon Energy recently became the latest driller to unveil a net zero target for Scope 1 and Scope 2 emissions — those from operations and energy purchases — by 2050. It plans to achieve this through initiatives including curbing methane leaks and phasing out routine flaring of natural gas. Unlike their larger rivals across the Atlantic, such as TotalEnergies and BP, US shale producers do not have the deep pockets or expertise to pivot to other areas such as renewables. But a smaller shale footprint as a result of a pullback in drilling after years of excess spending could at least help get the industry on the right track when it comes to emissions.
That extends to the rest of the oil industry as well, with global capital expenditure this year on track to be lower than the previous cyclical trough in 2016, even with oil prices well above $70/bl now. "The companies may not always care about energy transition in a direct sense, but by drilling less, they are contributing to decarbonisation," says Pavel Molchanov, director and equity research analyst at US bank Raymond James. And with the largest asset managers including BlackRock and Vanguard making it clear that they expect firms in their portfolio to reduce their carbon footprint, as shown in their recent support of dissident shareholders at ExxonMobil, pressure is likely to grow to cut emissions further.
Right now, Occidental Petroleum is the only US producer that has pledged to slash emissions from across the entire value chain to net zero by 2050. In contrast, Pioneer Natural Resources is targeting a 25pc reduction in greenhouse gas (GHG) intensity and a 40pc cut in methane intensity by 2030, inclusive of assets acquired as a result of last year's purchase of Parsley Energy.
Scoping mechanism
At ConocoPhillips' annual shareholder meeting in May, 58pc of investors called on the company to target full-scope emissions. The firm, which was the first major US producer to announce a net zero goal for operational emissions last year, now says it will work with its shareholders to reach "alignment" over its climate targets. "If everyone addressed their Scope 1 and 2 emissions, Scope 3 would also be addressed,"senior vice-president of strategy and technology Dominic Macklon says. "This is why we continue to advocate for an economy-wide price on carbon as the most effective way to address end-use emissions on the demand side."
In the meantime, ConocoPhillips says that prioritising investments in "low-GHG intensity assets" such as the Permian basinand Alaska will help it to make progress on meeting its near-term targets.
Of course, the longer the oil price rally lasts, the harder it may be to maintain drilling discipline. For an industry that until recently embraced a growth-at-any-cost strategy, that may prove a tall order. "You have a couple of years of high prices and people think it's going to last forever and lose their heads," Carbon Tracker's Grant says, so the key question remains how long this newfound discipline will last.
