Variable response to climate change risk by the oil field service sector
Frontispiece: Saipem 7000 at the Hywind WInd Farm. (Source: Saipem)
Companies in all sectors around the world are coming under increasing scrutiny about their risks associated with climate change and their mandate for addressing those risks. Investors are holding companies accountable for, at a minimum, identifying and beginning to manage these risks. There is potential advantage to those firms that do more and understand how changes in consumer habits, as well as government policies and regulations, will impact their markets and business models.
I have written several pieces on the need for oil and gas companies to make changes to adapt to climate change risk and the energy transition to a lower-carbon economy. In this blog, co-written with Brittany King, my colleague in Plan C Advisors, we overview the oil-field service sector, analyzing what these companies must do to address climate-change risks and access new markets to continue to grow.
Ten larger (market cap > $3 billion) listed companies that serve different parts of the oilfield services sector across the world were selected for analysis. Though this represents a fraction of companies that do business serving oil and gas operators, we will using a small sample to describe the challenges these businesses face and how they are responding. Company reports and websites were examined for each firm’s public position on climate change and climate risks, their responsiveness to climate change risks was scored based on the Index below.
Table: An index of responsiveness to climate-change risks (Source: Capriole Energy)
Figure 1: Appraisal of Climate Risk Responsiveness (Source: Plan C Advisors and Capriole Energy)
The diagram above illustrates the wide range of the responsiveness of the companies in our sample set. The analysis of admittedly a small sample set that market cap is not a control on responsiveness. Let’s drill deeper with a few examples.
Saipem is a well-known player in energy and infrastructure, including its provision of very large heavy lift barges for deep-water infrastructure used around the world. It scores well in our CRR index, displaying a progressive to even transformational response to the risks and opportunities of climate change. Saipem is well on top of its own GHG footprint with reduction targets in place. The company has published an excellent report on its strategic response to the risks climate change poses to its business operations and it is clear that the company’s board is deeply involved in setting a new course for the company. Saipem is advantaged by having capabilities and assets that can, and already are, being put to work in a number of sectors outside of oil and gas.
Similar to Saipem is Worley, a consultancy and advisory service with deep engineering expertise. Worley considers itself “ready for the global energy transition,” and sees potential in a wide range of opportunities including solar, thermal, offshore wind, hydro and hybrid power systems, as well as microgrid management and storage technologies, plus the delivery, rebuild, and digitization of transmission and distribution networks. Worley backs up its vision with action – reducing its own GHG footprint and producing a very comprehensive ESG Report that includes an assessment of the physical and transitional risks associated with climate change. While they are involved in some controversial projects such as the Keystone XL pipeline, the company asserts it is already the largest Tier 1 provider of engineering services for renewables. Worley’s strategy is enabled by the fact that the company isn’t encumbered with hardware, like drilling rigs, for example, that is largely dependent on oil and gas activity.
Schlumberger has a middling score in our CRR index. This company is an oil industry grandee – it invented wireline logging – and is coming to terms with the energy transition in a seemingly slow and painful way. However, it deserves credit for working on reducing its GHG emissions. Schlumberger has signed on as a partner of the Solar Impulse Foundation and became the first company in upstream oil and gas to commit to We Mean Business’s Science Based Targets initiative. There has been other work reported and recently appointed a new EVP for the Schlumberger New Energy segment focused on making investments in emerging technologies. Part of Schlumberger’s challenge is its large asset base of equipment used to drill, assess, and complete oil and gas wells. Continued use of these assets over their operating life may be an important financial aspect of their going-forward plan.
At the bottom of our 10 selected companies are Helmerich & Payne (H&P) and National Oilwell Varco (NOV). We appreciate that these two venerable players in the “oil patch” may be much more aggressive internally on their views on the energy transition, but we could find little evidence of that in external-facing communications. We believe that while there is a substantial risk for firms like H&P and NOV associated with a decline in their core business, there is also a huge opportunity for them to target new sectors given the engineering and technology capabilities they possess. Our view is that they need to get on with it, starting with explicit and substantial work on their own GHG emissions and an open acknowledgement of the financial risks they face, for example by using the SASB framework.
Plan C Advisors provides business leaders with a concise framework to identify their companies’ climate risks and opportunities. Assignments are led by former senior executives from a range of industries who guide our clients using insights from our own experiences leading climate and sustainability initiatives. e