How oil & gas M&A risks could hamper the energy transition
If you’ve spoken to me over the last few months, chances are you’ve heard me mention the “transferred emissions” problem. With oil and gas majors embarking on the energy transition, assets are moving from public companies with climate commitments and disclosure to private companies that lack similar targets and transparency.
My new report out today with Environmental Defense Fund colleague Andrew Baxter sheds light on this issue in unprecedented detail. Looking at the last five years of upstream M&A, we find that:
1. Assets are flowing from public to private markets at a significant rate, undermining climate disclosure
2. Assets are moving to companies with weaker climate commitments
3. This deal making can cause real-world climate harm
Already, we see that when oil and gas ownership shifts to less responsible operators, people and the planet pay the price. In the Niger Delta, gas flaring in 2021 more than quadrupled when assets were transferred from Shell to a private-equity-backed operator. In west Texas, hundreds of wells remain abandoned, leaking methane into the atmosphere following transfers from public to private markets.
The transferred emissions problem will define the path to net zero. Public companies that want to shift their business models will need to get rid of high-emitting stranded assets, and private companies with shorter time horizons will be the natural buyers.
To tackle this challenge, we need to pioneer a new model of M&A that takes climate impact into account. This process will require companies, banks, and investors to come to the table and work together to craft deal making aligned with a net zero economy. For upstream oil and gas, this climate-aligned deal making must include standards on emissions disclosure, emissions reduction targets, and responsible decommissioning.