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How Big Oil sells off polluting assets in a bid to look green

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Repsol’s Cartagena oil refining plant, Spain. EDF’s analysis revealed that Repsol was among the most popular sellers of assets in 2017-2021.

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There are increasing concerns about oil and gas companies selling their dirty assets to the private sector, highlighting concern that traditional fossil fuel deal-making may not be compatible with a net zero world.

The timing is perfect for it as major oil and natural gas companies are experiencing a financial crisis. immense pressureSet short- and medium-term objectives in accordance with the landmark’s goals Paris Agreement. This agreement is crucial to avoid any further climate catastrophes.

Do some research published last weekThe non-profit Environmental Defense Fund demonstrates how oil and natural gas acquisitions can have a negative impact on global greenhouse gas emissions.

The burning of fossil fuels like coal, oil, and gas is, without a doubt, the best way to get rid of them. chief driver of the climate crisisResearchers and analysts have repeatedly stressedGlobal warming of 1.5 degree Celsius cannot be stopped without urgent and significant emissions cuts across all sectors.

EDF’s study of more than 3,000 transactions between 2017-2021 shows that flaring and emission commitments vanish when the tens to thousands of wells go from public-traded companies to privately owned firms with no monitoring or reporting obligations to shareholders.

Sometimes these transactions make it appear that sellers are reducing emissions. In reality, pollution simply gets transferred to firms with lower standards.

Andrew Baxter

EDF Director for Energy Transition

These often-obscure private corporations tend not to reveal much about their operations, but can still be committed towards increasing the production of fossil fuels.

EDF’s research shows that such deals are on the rise in terms of both quantity and scale. In 2021, they will reach $192 Billion.

Andrew Baxter from EDF’s energy transition director, stated, “These transactions may make it seem like sellers have reduced emissions. But, in reality, pollution is being transferred to companies that are lower-standard.”

“Millions of tonnes of carbon emissions are effectively invisible to the public, regardless of what the sellers intended, and it is likely that this will continue for a long time. He added that environmental problems only worsen as wells and assets age with less oversight.”

According to the report, investors are increasingly concerned about the loss of their ability to evaluate company risks and hold them accountable for climate commitments.

The implications of this could also be significant for banks that are the most powerful in the world. Many of these banks have previously set zero-financed emission goals. Five of the six biggest U.S. banks advised on upstream deals worth billions of dollars since 2017.

The analysis raises questions about the integrity of Wall Street and Big Oil’s plans to finance them. energy transitionThis is a crucial shift to prevent a catastrophe-prone climate.

How can we transition to energy?

EDF used financial and industry data from mergers and acquisitions in order to determine how emission levels may have changed following a sale. The first comprehensive analysis of how oil and natural gas companies shift emissions to private buyers has been done.

One example: Britain’s Shell, France’s TotalEnergiesItaly and the World’s Best Eni — all publicly held firms with net-zero targets — sold off their interests in an onshore oil mining field in Nigeria last year to a private-equity backed operator.

EDF states that Shell and other top-selling companies are well-positioned for climate-aligned asset transfers.

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According to EDF analysis, there was almost no routine flaring between 2013 and transfer. TotalEnergies and Eni were the most popular sellers of assets in 2017-2021.

However, the rate of flaring quickly increased almost immediately. This case study highlighted climate risk from upstream oil-and gas transactions.

Natural gas flaring refers to the combustion of natural gases during oil production. This releases pollutants into the atmosphere, such as carbon dioxide, black carbon and methane — a potent greenhouse gas.

The World Bank saidThe main goal of the larger effort to reduce oil and gas production is to end this wasteful and harmful industry practice.

CNBC has reached out to Shell and TotalEnergies for comment.

The ‘wink wink nod approach’

A $7.2 billion bill of environmental liabilities was passed in July 2021 and ordered that some of the biggest oil and energy companies worldwide pay hundreds of million of dollars to replace aging Gulf of Mexico oil and gas wells.

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Logan, Ceres’ spokesperson said it was important to consider the potential costs associated with shutting down wells in the final stages of a person’s life. For example, Logan highlighted North America’s “huge problem” with “orphan wells.”

These wells are abandoned oil and natural gas fields by fossil fuel extraction companies, which could end up in the hands if they’re not cleaned up.

“It is interesting to look at how different the asset sale process is in most of North America compared to the assets in the Gulf of Mexico because, in the Gulf of Mexico, there are federal rules that basically say if you sell an asset and the next company — or the next, next, next company doesn’t clean it up — that liability comes back to you,” Logan said. You have an interest in choosing your partners carefully and making sure that they have enough money to fix the well.

As part of an investigation, the World’s Largest Corporate Emissionors were forced to fork over hundreds of millions of Dollars in July 2013. $7.2 billion environmental liabilities billTo retire the aging Gulf of Mexico oil and gas wells they once owned. This case is believed to have been a turning point in future litigation over cleanup costs.

It’s something I think is needed in all parts of the world, where the liability travels. Logan stated that it must be paid for, and they have to know about this at all stages of the process.

What are the best ways to address this problem?

According to the EDF, coordinated actions by asset managers, bankers, corporations, and private equity companies can reduce oil-and gas mergers or acquisition risks.

“It’s important to have this research because when we engage with companies in the sector, it is definitely a topic on the agenda,” said Dror Elkayam, ESG analyst at Legal & General Investment Management, a major global investor and one of Europe’s largest asset managers.

Elkayam answered a question about whether oil and gas companies recognize that they need to be responsible for transferring assets.

CNBC’s video conference with him stated that “I believe we will certainly benefit from greater disclosure on these assets.” It could include information about the company’s emissions or how much asset disposition will help meet its climate goals. Elkayam indicated that “this is an important area for scope out,” he said.

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