Big Oil Takes Unsteady Steps to Cut Transition Risk

(Bloomberg) --

Of the biggest U.S. oil and gas companies, EOG Resources Inc. is the least prepared for a low-carbon economy, according to BloombergNEF.

That’s based on an analysis of the company’s business-model transition risk. The overall research focuses on which companies are developing low-carbon revenue streams by investing in renewables; whether (or not) they’re expanding their fossil-fuel operations; and how threatened their current business is to the potential decline in oil demand.

EOG, the largest shale-focused independent oil company, scored the worst, partly because pure exploration and production companies face more transition risk, according to BNEF. Integrated companies tend to have stronger financial positions and a greater variety of skills that enable them to invest in and develop low-carbon businesses.

Investment in scalable, low-carbon business models is the most important part of BNEF’s score, said Jonas Rooze, BNEF’s head of sustainability research.

“EOG is doing nothing in areas like clean energy, hydrogen or carbon capture, as far as we can tell,” Rooze said. The company has poor scores on all its transition activities, he said.

In response to the BNEF assessment, Houston-based EOG said its long-term strategic planning process involves an analysis of “market forces that present risks and opportunities to our business plans and strategy.” The company said it has set up the EOG Sustainable Power Group to identify and implement low-emissions electricity generation to reduce its “carbon footprint with favorable economics,” including the recent startup of an eight-megawatt solar and natural gas hybrid electric power station.

Chevron Corp. is in the best position relative to its biggest U.S. competitors, such as Exxon Mobil Corp., ConocoPhillips and Occidental Petroleum Corp., according to the study. The company is exploring renewables, electric-vehicle charging and battery systems, and making some clean-energy acquisitions. Its activities in carbon capture and storage in particular rival the best in the world, Rooze said. Last week, Chevron said it’s investing in a California startup that captures carbon dioxide from factories and then converts the greenhouse gas into gravel and other building materials.

Chevron still lags far behind European rivals, including Royal Dutch Shell Plc, Total SE and Equinor ASA, in most other investment areas, Rooze said. Where Chevron is installing dozens of megawatts of renewables or EV charging points, the European companies are installing hundreds or even thousands in some cases, he said.

BloombergNEF is working with Bloomberg Intelligence (BI), both of which are research centers within Bloomberg LP, on climate transition scores for 39 major oil and gas companies. The scores are designed for investors to identify companies most threatened by accelerating global climate action and technological transformation, and to understand the material transition factors affecting the industry.

BI is focused on the companies’ current carbon performance and future targets, while BNEF examines transition risks posed by current business models and how companies are adapting their models.

It’s not all about whether a company is engaging with low-carbon technologies. For example, in the face of declining oil demand, companies are more likely to be forced to write down the value of their reserves if they’re unable to produce it competitively, or if it will take them many years to produce all of it. Meanwhile, companies like EOG that devote significant funds to high-carbon activities rather than transition to cleaner energy are actively increasing their transition risk, Rooze said.

“Setting up low-carbon businesses represents the opportunity side of the equation,” he said. “But these are still oil and gas companies and you can't measure the risks without getting to grips with that.”

Sustainable Finance in Brief

• Investors managing more than $2 trillion of assets are calling on world leaders to address the “unfolding humanitarian crisis at sea” where marine workers are stranded due to border closures and restrictions on movement imposed to contain Covid-19.
• Fidelity Investments and Capital Group ranked the worst of the world’s 10 biggest asset managers last year on pushing high-carbon emitters to curb their role in global warming.
• China is set to post the fastest growth in Asia for environmental, social and governance investments after the country boosted exchange-traded fund assets 18-fold in the past two years.
• Total SE became the first oil major to quit the influential American Petroleum Institute due to a clash on climate change policy.
• Allianz SE may cut investments in stocks and bonds issued by emissions-intensive companies as it steers away from businesses that foment global warming.

Bloomberg Green publishes the Good Business newsletter every Wednesday, providing unique insights on climate-conscious investing and the frontiers of sustainability.