Released May 01, 2023 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Civitas Resources Incorporated (NYSE:CIVI) (Denver, Colorado), a two-year-old oil & gas producer formed by the roll-up of five different companies in 2021-2022, has a message for its peers: environmental, social and governance (ESG) measures are not only the future, they are good business--and they are not that expensive. A Civitas executive told attendees at an oil and gas conference that they could either get on board, or risk expiring before their time.
"Tell my Texas friends: I am from the future," said Brian Cain, chief sustainability officer for Civitas, about ESG issues. "Regulations go one way: they get harder. They don't get easier."
Cain's April 19 remarks came at an oil and gas ESG conference sponsored by EnerCom Incorporated (Denver, Colorado). That event, held in Dallas, came as the U.S. Securities and Exchange Commission (SEC) (Washington, D.C.) continued to mull its controversial proposal to require all publicly traded companies to disclose all their greenhouse gas (GHG) emissions, including so-called Scope 3 emissions, which are created in part when consumers use products that were created by companies.
The SEC draft rule, originally proposed in early 2022, reportedly has drawn more than 15,000 responses, many from corporate America. It is not clear when or even if a final rule will be issued, and litigation seems to be likely. For more on the draft SEC rule, see March 23, 2022, article - Energy, Business Groups Slam SEC's GHG Disclosure Draft Rule.
The name Civitas is Latin for "community." It is Colorado's largest pure-play oil and gas producer, operating exclusively in the Denver-Julesburg Basin north of Denver. It produces about 169,000 barrels of oil equivalent per day (BOE/d).
It claims to be the first carbon-neutral oil and gas producer in the Centennial State, and it is using its ESG credentials to differentiate itself from its peers.
Cain told EnerCom Dallas attendees that the company has committed to a 50% reduction in Scope 1 carbon dioxide (CO2) emissions between 2021 and 2027. The company's board of directors has authorized $15 million to reduce emissions by about 455,000 tons.
The Civitas executive said the company aims to actually reduce emissions, not buy allowances to offset emissions. Cain likened allowances to the Catholic Church's buying of indulgences in the Middle Ages, where believers paid a fee to the Church to be absolved of sins.
"For a company to be carbon-neutral, you must be reducing operational emissions. That's your first priority always," he said. Companies that achieve carbon-neutrality mainly by buying emissions offsets are practicing what Cain called the "buying of indulgences," which he said would do nothing for a company's ESG efforts.
Besides, he continued, companies that rely on buying offsets, rather than making operational changes to lower GHG emissions, expose themselves to a volatile financial market where the cost of an offset can rise or fall sharply from year to year.
Making ESG one of its corporate pillars, alongside profitability and returning cash to shareholders, "has set us up pretty well in Colorado, which has a pretty tough regulatory environment," Cain said.
Oil and gas ESG programs "must start with legitimacy and credibility, and for us, that starts with accurate measurement," he told conference attendees. "As we rolled up five companies, we realized we had five different data streams and five different measurement processes." As the new management team took over and applied a more rigorous and consistent measurement protocol, it found that several of Civitas' precursor companies had been significantly undercounting the number of pneumatic devices it used.
Once Civitas' leaders had GHG emissions data they felt was accurate, they saw that the company used tens of thousands of "pneumatic devices," which accounted for about 40% of its GHG emissions. Those devices opened or closed valves using a puff of methane from the well. In aggregate, given the large number of pneumatic devices Civitas had, that added up to a large amount of methane, a potent GHG. Retrofitting those valves to open and close using puffs of air instead of methane was "low-hanging fruit," he said.
"In the 1920s, when they were invented by an engineer, pneumatic values were freaking genius, brilliant, revolutionary. But today they're massively problematic because they release methane into the air, and we know methane is an extremely potent GHG."
One new compressor station emitted more than 40,000 metric tons of methane, he said.
Civitas is spending $11 million this year to comprehensively retrofit its pneumatic values to use air rather than methane. That retrofit will cut the company's methane emissions by about 40%, he said.
Cain noted that the pneumatic device retrofit was only one part of the company's broad ESG aspirations. "It's not that hard for operators to become carbon-neutral today. Carbon neutrality incentivizes good behavior. And once your engineers understand that for every ton of emissions they prevent through operational changes, that's one less thing the company will be on the hook for at the end of the year. It creates a cultural change within the organization."
Cain also detailed other initiatives Civitas was pursuing to more proactively and positively engage with its stakeholders, a broad category of actors that include the communities in which it operates, employees, suppliers, investors and regulatory and elected officials.
Companies that pursue and achieve challenging ESG initiatives, he said, were more likely to be successful for the long haul. Cain asserted that the energy transition will reduce the number of energy companies operating, though he did not specify if that was because of mergers or reduced future demand for oil and gas. Regardless, he said, in the future, "the companies that create the cleanest hydrocarbon molecule, the most socially minded firms that are in alignment with all their shareholders, will be among the last ones around."
Cain recognized that there was a short-term cost to implementing ESG initiatives. But he concluded with this: "If you could have a program that essentially makes you carbon neutral, that helps you eliminates nearly half of your corporate emissions, that aligns you with your regulators, if you could set up a gold-standard program that was beyond reproach, and you could do it for between one and two percent of EBITDA (earnings before interest, taxes, depreciation and amortization), why wouldn't you do that?"
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
"Tell my Texas friends: I am from the future," said Brian Cain, chief sustainability officer for Civitas, about ESG issues. "Regulations go one way: they get harder. They don't get easier."
Cain's April 19 remarks came at an oil and gas ESG conference sponsored by EnerCom Incorporated (Denver, Colorado). That event, held in Dallas, came as the U.S. Securities and Exchange Commission (SEC) (Washington, D.C.) continued to mull its controversial proposal to require all publicly traded companies to disclose all their greenhouse gas (GHG) emissions, including so-called Scope 3 emissions, which are created in part when consumers use products that were created by companies.
The SEC draft rule, originally proposed in early 2022, reportedly has drawn more than 15,000 responses, many from corporate America. It is not clear when or even if a final rule will be issued, and litigation seems to be likely. For more on the draft SEC rule, see March 23, 2022, article - Energy, Business Groups Slam SEC's GHG Disclosure Draft Rule.
The name Civitas is Latin for "community." It is Colorado's largest pure-play oil and gas producer, operating exclusively in the Denver-Julesburg Basin north of Denver. It produces about 169,000 barrels of oil equivalent per day (BOE/d).
It claims to be the first carbon-neutral oil and gas producer in the Centennial State, and it is using its ESG credentials to differentiate itself from its peers.
Cain told EnerCom Dallas attendees that the company has committed to a 50% reduction in Scope 1 carbon dioxide (CO2) emissions between 2021 and 2027. The company's board of directors has authorized $15 million to reduce emissions by about 455,000 tons.
The Civitas executive said the company aims to actually reduce emissions, not buy allowances to offset emissions. Cain likened allowances to the Catholic Church's buying of indulgences in the Middle Ages, where believers paid a fee to the Church to be absolved of sins.
"For a company to be carbon-neutral, you must be reducing operational emissions. That's your first priority always," he said. Companies that achieve carbon-neutrality mainly by buying emissions offsets are practicing what Cain called the "buying of indulgences," which he said would do nothing for a company's ESG efforts.
Besides, he continued, companies that rely on buying offsets, rather than making operational changes to lower GHG emissions, expose themselves to a volatile financial market where the cost of an offset can rise or fall sharply from year to year.
Making ESG one of its corporate pillars, alongside profitability and returning cash to shareholders, "has set us up pretty well in Colorado, which has a pretty tough regulatory environment," Cain said.
Oil and gas ESG programs "must start with legitimacy and credibility, and for us, that starts with accurate measurement," he told conference attendees. "As we rolled up five companies, we realized we had five different data streams and five different measurement processes." As the new management team took over and applied a more rigorous and consistent measurement protocol, it found that several of Civitas' precursor companies had been significantly undercounting the number of pneumatic devices it used.
Once Civitas' leaders had GHG emissions data they felt was accurate, they saw that the company used tens of thousands of "pneumatic devices," which accounted for about 40% of its GHG emissions. Those devices opened or closed valves using a puff of methane from the well. In aggregate, given the large number of pneumatic devices Civitas had, that added up to a large amount of methane, a potent GHG. Retrofitting those valves to open and close using puffs of air instead of methane was "low-hanging fruit," he said.
"In the 1920s, when they were invented by an engineer, pneumatic values were freaking genius, brilliant, revolutionary. But today they're massively problematic because they release methane into the air, and we know methane is an extremely potent GHG."
One new compressor station emitted more than 40,000 metric tons of methane, he said.
Civitas is spending $11 million this year to comprehensively retrofit its pneumatic values to use air rather than methane. That retrofit will cut the company's methane emissions by about 40%, he said.
Cain noted that the pneumatic device retrofit was only one part of the company's broad ESG aspirations. "It's not that hard for operators to become carbon-neutral today. Carbon neutrality incentivizes good behavior. And once your engineers understand that for every ton of emissions they prevent through operational changes, that's one less thing the company will be on the hook for at the end of the year. It creates a cultural change within the organization."
Cain also detailed other initiatives Civitas was pursuing to more proactively and positively engage with its stakeholders, a broad category of actors that include the communities in which it operates, employees, suppliers, investors and regulatory and elected officials.
Companies that pursue and achieve challenging ESG initiatives, he said, were more likely to be successful for the long haul. Cain asserted that the energy transition will reduce the number of energy companies operating, though he did not specify if that was because of mergers or reduced future demand for oil and gas. Regardless, he said, in the future, "the companies that create the cleanest hydrocarbon molecule, the most socially minded firms that are in alignment with all their shareholders, will be among the last ones around."
Cain recognized that there was a short-term cost to implementing ESG initiatives. But he concluded with this: "If you could have a program that essentially makes you carbon neutral, that helps you eliminates nearly half of your corporate emissions, that aligns you with your regulators, if you could set up a gold-standard program that was beyond reproach, and you could do it for between one and two percent of EBITDA (earnings before interest, taxes, depreciation and amortization), why wouldn't you do that?"
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
