Word to the Wise: Challenges with emissions data analysis in mergers, acquisitions, and divestitures
July 5, 2022
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For producers in the WCSB, emissions reduction planning isn’t coming; it’s here. Whether it’s driven by investors, lenders, regulators, or government initiatives, it has become necessary to deal with emissions in oil and gas development. This has led many companies to make emissions net zero pledges and set their own benchmarks and intensity reduction targets.
While emissions-based initiatives are often focused on internal operations, companies looking to expand via acquisitions need to factor emissions into their deal considerations. Failing to do so could result in acquisitions that dramatically impact corporate emissions goals, which could put the company in danger of falling behind from regulation or losing their creditor standing. This means asking questions like:
- What will be the material impact on our corporate intensity if we purchase this package? (Same goes for divesting).
- How will it affect our investor standing, credit facilities, or our long-term intensity targets?
- Can I get ahead of the planning game and find early mitigating solutions?
In a recent information session, we polled attendees about the role emissions play in their current A&D scoping. The results proved that there is a shift happening in A&D scoping when it comes to emissions data considerations, with the majority of attendees saying that they currently consider emissions in the deal-making process at least at some level, or that they would like to.
But while the industry is discovering the need for usable emissions data for A&D scoping, it isn’t always easy to get. From our research with clients and the industry, we identified several issues companies currently face when trying to look for external emissions data.
The biggest issue is that over-the-fence GHG data is difficult to find, let alone amalgamate – particularly when you’re dealing with groups of assets rather than a corporate acquisition. The go-to for this data is often Sustainability Reports, but these reports are only available for public companies that choose to report and are often more than a year out of date. This would become an issue if, say, a company had some major corporate acquisitions in 2021 and early 2022, but the data is from 2020.
Even if you are looking at relatively up-to-date sustainability reports for multiple opportunities, the self-reporting nature makes apples to apples comparisons difficult. For example, while there may be standards in reporting that have been adopted (SASB for instance,) there may be different approaches to converting from volume to tonnes. To add to the complexity, this often depends on the level of detail, expertise, and experience behind the reporting.
For the bold few whose emissions evaluations are dependent on gathering public regulator data, a major challenge beyond amalgamating the data in a usable format is that some data just isn’t readily available or current. This includes fugitive emissions, Scope 2, purchased gas for co-gen oil sands operations, etc.
Even after getting usable data (when possible) in the A&D process, the next challenge is being able to do before vs after acquisition scenarios in a timely manner. This is the essential part of incorporating emissions data into scoping: determining the material impact of a potential acquisition on the buyer’s company.
In subsequent polling, we learned that of those who are incorporating emissions data into their scoping, most aren’t doing so until later in the process.
ESG and emissions data will become increasingly important in the coming years. For some organizations, it is currently the purview of specialized teams looking at their existing operations. Forward-thinking organizations realize that they need to incorporate emissions planning throughout their organization, especially when it comes to A&D. Internal emissions targets in alignment with corporate strategies can’t be realized unless the impact of deals can be determined before the deal is made.
Companies looking for a more holistic approach to emissions management will need strategies to overcome the common challenges associated with over-the-fence emissions scoping: where to get the data, how to ensure its reliability, whether it provides equitable comparisons, and how the data can show potential impacts of a sale. Those best equipped to tackle such challenges are the ones most likely to succeed in this new environment.
To learn more about this topic and how XI Technologies’ AssetBook Emissions module supports A&D work, register for our upcoming XI Chat: Emissions scoping for A&D on Thursday, July 21st or contact us for more info.