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Oil Search’s Alaskan oil play ignores climate reality

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Just days out from the start of the 23rd Conference of the Parties climate talks, billed as the “Pacific COP” as it will be presided over by Fijian PM Frank Bainimarama, PNG-based petroleum company Oil Search has delivered what can only be described as a slap in the face to its Pacific neighbours.

Oil Search yesterday announced that it has acquired stakes in two prospective Alaskan oilfields for US$400 million.

The ASX-listed company variously described the oilfields as “high quality” and “world class”, and complementary to its existing “exciting” growth projects in PNG.

What the company failed to mention is how the development of these assets reconcile with its commitment to an effective global climate agreement. The announcement also calls into question the value of investors seeking greater climate risk disclosure.

Earlier this year, in response to a shareholder resolution coordinated by Market Forces, Oil Search committed to implementing all of the recommendations of the Task force on Climate-related Financial Disclosures (TCFD). Oil Search Chairman Rick Lee even went so far as to commit to publishing scenario analysis incorporating both 1.5C and 2C policy pathways before next year’s AGM.

For context, no Australian company has published scenario analysis based on a 1.5C pathway.

At the time, that commitment appeared to represent climate leadership, at least in the Australian energy sector. And yet here we are, just six months later, watching the very same board approve the expansion of the oil industry by a potential one billion barrels.

In response to demands for greater disclosure of climate risk, Oil Search argued that they had a “gas-dominant portfolio and growth strategy”, and that they would “remain resilient” in a carbon-constrained world. Oil Search is effectively betting that peak oil demand is either not happening, or happening much later than its much larger peers think.

While both Shell and Statoil have argued that peak oil demand is likely to be reached before 2030, and are actively diversifying away from crude oil.

Based in PNG, Oil Search is well aware of the dangers climate change poses to developing economies. In 2016, a prolonged drought in PNG saw more than 200,000 people in need of food aid. And PNG has already begun evacuating people living on the Cartaret Islands to Bougainville, due to rising sea levels. And yet rather than taking a position of leadership and diversifying away from fossil fuels, Oil Search is seeking to exacerbate the problem further.

Oil Search’s acquisition poses difficult questions to investors. Climate risk disclosure, as recommended by the TCFD, may provide investors with greater transparency, but it certainly isn’t the panacea to tackling emissions.

Oil Search will find a way to fit this latest acquisition into a 1.5C scenario analysis, no doubt by suggesting their assets are “world class” and the lowest cost. But such analysis does nothing to assuage investors that the board of Oil Search is astute enough to steer the company down a low carbon path.

In fact, this acquisition does precisely the opposite. For Oil Search, it’s clearly business as usual. So what will investors do about it? For a start, they should demand companies produce plans on how they intend to reduce their emissions. And when a company fails to follow those plans, vote against the re-election of directors.

Author: Daniel Gocher, Analyst/Campaigner, Market Forces. Reproduced with permission.   

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  • Joe

    In 1989 the Exxon Valdez ran aground at Prince William Sound, Alaska and unleashed a nightmare. One tanker and the environment and human impacts go on today. It seems nothing is learnt when drilling is being contemplated.

  • Kevan Daly

    “Oil Search’s acquisition poses difficult questions to investors.”

    It certainly, does but climate risk won’t figure in any major way. Investors will be looking at the cost of the acquisition, the risk that the attributed oil and gas potential won’t be realized, the development costs and the time taken to bring new production on line.

    It’s only failure in these areas which will be a risk to directorial re-election.

    • Ren Stimpy

      Trump “The Massive Risk” is up for re-election soon in the mid-terms. Let me know how he helps any continuity of business with his risky proposals.

    • André Balsa

      Banks and investment funds with heavy FF portfolios have been losing money these last few years, whereas those with “greener” portfolios have not. Investors don’t really need to think much or analyse a lot these days to make the correct decision to divest from fossil fuel related investments and look elsewhere.

  • Miles Harding

    A slap in the face it is.

    Depending on whose story you read, the resource is either 500M or 1G BBL, either way it doesn’t make a big difference to the world supply, amounting to between 5 and 10 days of world consumption.

    As they say: “it’s the thought that counts” and Oil Search is perfectly happy help drown their island neighbours. You’d think they could find a better place to use their capital.

    It would appear that there are no big deposits of oil left to be discovered, so the press crawls all over this sort of inconsequentional discovery. Nobody is looking over the long grass at what will happen when the current bumpy plateau is left behind and we enter a period of monotonic decline. All it would take would be for a super-field, like Ghawar, to falter and remove a few million barrels per day from the supply. This is very likely in the near future when one considers the amount of infill drilling and rising water fraction.

    Optimistically, there will be a transition of sufficient pace to make this decline inconsequential.

    • Farmer Dave

      I agree, Miles. The fossil fuel companies who do not make an immediate turn away from fossil fuels are not likely to survive many more decades. The sooner they go, the better for our climate. As for us, I think we are woefully unprepared for stopping the use of fossil fuels. After all, the food industry has been been described as a machine for turning oil into food, and I see almost no efforts being made to change that.

      As you said, the oil companies need oil around US$100 per barrel to prosper, but our economies can not afford that. I cannot see this ending well for all concerned.