Embracing ESG in petroleum operations: why and how?

A PETROLEUM ENGINEER’S VIEW:

It has been said that the only constant in the petroleum industry is change. Recognising the likely lengthy transition to reliable alternative energy sources, it is expected that the petroleum industry will continue to contribute significantly to world energy and everyday personal life items which require petroleum as part of the manufacturing process.

Recent “climate change” conversations have placed pressure on the industry, with much of the focus channelled through ESG (Environment, Social & Governance) principles.??

One hears that ESG is not good business for the oil industry, and statements alike.?

But,

• Is it good for business to impact the environment without measuring the effects? (Under Environment principle)
• Is it good for business not to have Occupational Health systems embedded in production operations? (Under Social principle).
• Is it good for business to allow bribery in our procurement processes? (Under Governance principle).

No. None of these examples are good for business and, as indicated, they are included under the ESG principles.

So, does the oil industry want to treat ESG as something that is not core to our operations (when it already is)? Or treat it as something that only specialist professionals can handle?

No. We should consider what ESG means, embrace it from Board level to Field Operations, and use it to improve our industry. This is the way to go in a world that is more transparent and conscious of people’s well-being, the environment, and where we (and our children) live.

Let’s then upskill our oil and gas professionals with the ESG principles, and then the integration of the principles into our operations will be a seamless and positive task.

ESG PRINCIPLES AND REPORTING:

To understand the principles, let’s review the elements in each.

Environment:?

Under this ESG principle we find: GHG emissions, Air emissions, Biodiversity, Waste, Water and effluents.

When inadequately managed, all the above may have negative impacts on the environment and human health, which can extend beyond the locations where emissions and waste are generated. Oil and gas activities, including those that require water use, and construction and rehabilitation activities, typically generate high volumes of waste and hazardous waste.?

However, managed properly, not only is the impact minimised, but the volumes of emissions and water use are reduced significantly.

Social:

Under this ESG principle are all manner of things relating to the relationship of our industry with stakeholders (whether internal or external): Occupational health and Employment practices, Non-discrimination and equal opportunity, Forced labour and modern slavery, Freedom of association and collective bargaining, Economic impacts, Local communities, Land and resource rights. Rights of indigenous peoples, and Conflict and security.

Many of the topics under this principle are already managed in the oil industry. For example, under this principle, good occupational health & safety systems (regardless of company size) ensure a sustainable work environment. Another topic under this principle, which is already established in our industry, refers to Discriminatory practices that can impede access to jobs and career development and lead to inequalities in treatment, remuneration, and benefits. Also, many of the issues related to Local and Indigenous communities can generally be managed by early and continuous engagement, particularly by technical people who are able to convey the techniques, risks and mitigations in petroleum activities.

Governance:

Corporate governance refers to how an oil and gas company is led and managed, how shareholder rights are viewed and honoured, and what types of internal controls exist to promote transparency and accountability on the part of leadership. Under this principle we find: Asset integrity and critical incident management, Climate adaptation, resilience and transition, Closure and rehabilitation, Anti-competitive behaviour, Anti-corruption, Payments to governments and Public policy.

Governance ensures that a company’s business practices are ethical, transparent, and accountable. Investors already know that long-term value comes to businesses that commit to ESG matters and will look away from investments with an excessive amount of risk in that regard.

Whilst most (if not all of the topics under this principle) are being managed in the petroleum industry, it is essential to have all personnel understand them and ensure the correct behaviours are followed.

Reporting:

Whilst there is still room for consolidation of the multiple standards for reporting, what is important is that all ESG topics are monitored and reviewed with transparency, and the best way to formalise is through corporate reporting.

With the constant increase of regulations concerning corporate ESG data reporting, it becomes increasingly important for the petroleum industry to report on those topics. Even though ESG reporting is not yet mandatory in all countries, an increasing number of companies disclose this information voluntarily since they’ve recognised the importance of communicating their business strategy and the impact their business has on our planet. As recently as 2020, about 90% of the companies in the S&P 500 had already created annual ESG reports as a standard.?

INTEGRATING ESG INTO THE BUSINESS AND OPERATIONS:

So, now that we understand the ESG principles and how they relate to the petroleum industry activities, we realise that some may be closely managed and others not. But, regardless of this, simple steps need to be followed for successful integration.

Setting Strategy:?

The right strategy for integrating ESG principles into petroleum operations and business requires a simple and complete risk-based approach, prioritising what is most important to the company, measuring performance again practical goals and reacting swiftly to goals not being achieved. Only by regular and frequent reporting (Daily and monthly) can significant improvements be attained, and cost and efficiency opportunities identified.

Whilst an ESG strategy for an oil and gas company can have many well-defined steps, the focus should always be on three main macro steps: Set Risk-based Goals, Assess Performance, and Respond Promptly. Again, these three macro steps must be applied to all ESG topics/factors.

Operations:

The role of Operations in implementing an ESG strategy cannot be underestimated.?Field personnel are the first to identify, acquire, validate, store, and deliver ESG data to all key stakeholders efficiently and effectively. The right behaviours ensure the avoidance of Operational delays, Accidents, Loss of profitability, Environmental losses, Loss of Reputation and Legal compliance issues.?Field personnel are the first to identify opportunities, minimise impacts, reduce waste volumes and thus, operating costs.?

Identifying opportunities:

The identification of business opportunities emanating from applying ESG principles can be:?

• Growth by attracting new oil and gas sale customers thanks to a sustainable operation.
• Growth by better access to resources through stronger community, labour & government relations.
• Cost reduction in energy usage, waste disposal costs, unnecessary logistics, and regulatory fines.
• Improved productivity of existing personnel and equipment.
• Superior investment returns by better allocating capital for the long term in sustainable projects.

Setting Targets and Measuring Performance:

It’s not necessary to track every possible indicator to help a company become more sustainable. However, by focusing on measuring what matters and forecasting the impacts, oil and gas companies are discovering new ways to minimise the impact and increase profits. The first step in the process is engaging with your most important stakeholders to create a short list of critical sustainability issues (and KPIs) to track. The real breakthrough comes when?sufficient data allows forecast to commence. Over time, the business will develop leading indicators and set ambitious goals to move from reactive to proactive responses.

Change Management:

A company will ensure successful implementation by treating the integration of ESG principles as a project. The key to change management is to prepare the organisation for change, by providing sufficient ESG knowledge and awareness, communicating the strategic goals and benefits, empowering employees during the implementation, and supporting the employees (especially field personnel) in preventing, removing, or mitigating roadblocks.?In this way, a reversion to the prior state, particularly during the transitory period, will not occur.?Finally, a regular review of progress and results analysis is critical, focusing on simple questions: Were project goals met? If yes, can this success be replicated elsewhere? If not, what went wrong?

FINAL WORDS:

Petroleum industry companies and their personnel need to start gaining ESG knowledge in the current climate-change-conscious world.

With these new “ESG skills”, personnel will be able to determine how to integrate these principles within their teams and across their daily operations, and the need for additional ESG-dedicated resources in a company will be minimised.?

UPSKILLING COURSES:

Short Online "ESG For Petroleum Engineers" courses are available in english and spanish, delivered practically from a Petroleum Operations perspective.?For details and registration, visit:?https://prodops.ipecprom.net/currenttraining/esg

Contact the author on [email protected] for any in-person ESG upskilling courses and workshops.