ESG Compass report reviews, ranks and scores key metrics for investors and operators. A methane tax within the Inflation Reduction Act could impact operational changes for hydrocarbon production.
Enverus Intelligence Research (EIR), a subsidiary of Enverus, the most trusted energy-dedicated SaaS platform, has released its third iteration of its ESG Compass report that benchmarks U.S. and Canadian E&Ps on various environmental, social and governance (ESG) metrics. Investors continue to signal that ESG performance will be a fundamental input into its investment process while operators strive to develop competitive advantages inside and outside the boardroom. Enverus ESG Analytics reviews, ranks and scores emissions, emissions reduction targets, diversity in the workforce, board makeup, executive compensation and more. However, adding a new wrinkle to the issue is the impact that a methane tax contained within the newly passed Inflation Reduction Act (IRA) could have on the oil and gas industry.
“Natural gas and emissions are still taking center stage from an environmental standpoint.The gas is getting greener with all environmental factors and 89% of overall categories in our ESG algorithm improving on average since 2017 across producers we score. Still, important variation exists across companies and regions, and we are closely monitoring whether these improvements hold true as activity gains steam after the COVID lows,” said John Gutentag, report author.
“We view the inherent subjective practice of ESG scoring as a feature, not a flaw. ESG analysis is about internalizing historically externalized data points and what is important for one industry participant will be different from the next. The key is getting trusted, verified information which our ranking helps provide.”
“However, Enverus sees the methane tax as regulation via taxation, rather than long-term revenue generation. The goal of the tax, and the likely outcome, is not revenue generation but operational changes.”
Key takeaways Enverus’ ESG Compass report:
- EQT Corporation (EQT), Range Resources Corp. (RRC), SM Energy (SM), ARC Resources (ARX) and Coterra Energy Inc (CTRA) are the top ranked ESG producers across the 56 North American operators scored using EIR’s algorithm.
- All 11 environmental factors in our algorithm improved on average since 2017, a notable accomplishment for the industry. Overall, 89% of metrics improved since 2017.
- There is a statistically significant relationship between bond yields and ESG performance. EIR estimates a 10-point improvement in ESG score results in a decrease in bond yields of 0.54 percentage points. There is no clear trend for equities.
- ESG data disclosure is improving, with 98% of operators increasing their disclosure rates since 2017.
- Gas operators edge out oil producers by 2.7 points on average, while U.S. companies top their northern peers by 4.2 points driven by Canada’s low-performing oil sands.
- Appalachia remains the most-ESG friendly region with the six companies averaging a score of 67.1 while Canada’s oil sands lags at 53.3 mainly due to our score’s focus on emissions.
Key takeaways on the potential impact of the methane tax within the Inflation Reduction Act:
- If steps to reduce methane emissions do not occur before 2024, the financial impact of the methane tax on the U.S. upstream and midstream sectors will be ~$1.2 billion annually, increasing to $2 billion annually once the maximum rate activates in 2026.
- Some 30% of upstream gas production sent to sales in 2020 violates the IRA’s 0.2% methane intensity threshold and will incur a liability assuming no operational changes by 2024. This is made up overwhelmingly of private operators, where 50% of gas sent to sales emits excess methane compared to only 21% for public producers.
- Nationwide, the average upstream unit cost is $0.10/boe, but that average jumps to $0.26/boe when only including facilities that trigger the tax by emitting above the allowable threshold.
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About Enverus Intelligence Research
Enverus Intelligence Research, Inc. is a subsidiary of Enverus and publishes energy-sector research that focuses on the oil and natural gas industries and broader energy topics including publicly traded and privately held oil, gas, midstream and other energy industry companies, basin studies (including characteristics, activity, infrastructure, etc.), commodity pricing forecasts, global macroeconomics and geopolitical matters. Enverus Intelligence Research, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser.