5 minute read
Exxon faces shareholder scrutiny over unclear decommissioning plans
companies risk holding stranded assets with expensive decommissioning costs. Given the uncertainty around the lifespans of assets in midstream and downstream segments such as refineries, pipelines, and wells, most oil and gas companies have only recognised upstream AROs.
While this is permissible under accounting rules, LGIM and CBIS argue this does not provide investors with the full information to assess the company’s climate plans.
report assessing the financial impact of the IEA’s net zero assumptions, including future AROs.
Exxon Mobil is facing fresh scrutiny from investors over its climate ambitions at its upcoming AGM next month.
Legal and General Investment Management (LGIM) and Christian Brothers Investment Services (CBIS) have co-filed a shareholder resolution, calling on the energy giant to provide more disclosures on potentially stranded assets post-energy transition.
The two investment groups are requesting Exxon’s board reveals whether their asset retirement obligations (ARO) are in line with the International Energy Agency’s (IEA) net zero emissions targets.
Oil and gas companies are legally required to decommission long-lived tangible assets at the end of their useful lives –known as AROs.
As the lifespan of oil and gas infrastructure is being shortened amid the low-carbon transition, there is a growing chance
The two parties believe the disclosures they are seeking will provide insight about how Exxon estimates AROs in financial statements and the effects of IEA net zero obligations.
LGIM considers the move to be a natural escalation step for its investment stewardship team, as Exxon’s business model is not aligned with the Paris Agreement climate goals of 1.5 degrees.
Michael Marks, head of investment stewardship and responsible investment integration at LGIM, said: “By filing this proposal, we are seeking greater clarity into the costs associated with the retirement of Exxon’s assets, in the event of an accelerated energy transition. We believe such level of disclosure is imperative for investors to better evaluate long-term risks and economic viability of the business in a carbon constrained future.”
John W Geissinger, chief investment officer at CBIM, noted that a majority of Exxon’s shareholders voted for its resolution last year seeking an audited
He said: “Despite this, the company’s disclosures still give investors little insight into how retirement costs might accelerate, and how large they might be. Exxon may assume an asset can operate indefinitely, but this may not prove out. Investors are simply asking: what is the total cost of meeting these liabilities?”
Shell, one of Exxon’s major rivals, has already disclosed significantly more ARO details.
The UK-based fossil fuel trader has accelerated the assessment of the discount rate from a 30-year term to a 20year term, with a provision at £26.7bn for the process.
Exxon is also not the only energy giant facing challenges from investors, with Follow This attempting to convince shareholders to force Total to commit to scope three emission targets.
A spokesperson for Exxon said: “We respect that our shareholders may have viewpoints and perspectives that differ from management and the board, and we always consider their feedback.”
Field Development Update
Offshore O&G-related engineering, procurement and construction (EPC) contract award value year-to-date is estimated at US$11.3 billion (excluding letters of intent). During the period under review, Eni reportedly selected Altera Infrastructure's Voyageur Spirit floating, production, storage and offloading (FPSO) unit to be deployed on its Baleine Phase II development offshore Ivory Coast. The FPSO, which is currently moored off the coast of Scotland, is scheduled to move to Dubai Drydocks' yard in June 2023. Meanwhile, Eni also confirmed that the Firenze FPSO unit destined for the first phase of the Baleine project had set sail for the field following the completion of its refurbishment and upgrade. The FPSO will be renamed Baleine upon arrival.
Other notable activity during the past month includes reports that SBM Offshore has finalised talks with China Merchants Heavy Industry (CMHI) to build the hull and living quarters for its next Fast4Ward floating production, storage and offloading unit, internally named multipurpose floater C (MPF C) and potentially destined for operation offshore Guyana.
Aker Solutions announced an engineering, procurement, construction, installation and commissioning (EPCIC) contract award from Equinor for the tieback of the OMV-operated Berling development offshore Norway to its Asgard host field. Aker Solutions was well poised for the contract as it completed the project's front-end engineering and design (FEED) studies in August 2022 and continued to develop the project scope and technical solution.
Looking forward, Westwood forecasts a further US$58 billion of offshore O&G-related EPC spend for the remainder of 2023, driven by over 200 subsea tree unit awards, c.4,200km of subsea umbilicals, risers and flowlines (SURF), c.6,500km of pipelines, c.175 fixed platforms and 13 FPS units. Key projects anticipated to be sanctioned in 2023 include ExxonMobil's Uaru (Guyana), Equinor's Pao de Acucar (Brazil), Petrobras' Albacora FPSO (Brazil), Equinor's Rosebank (UK) and the first floating liquified natural gas (FLNG) unit for Delfin Midstream's Deepwater Port LNG project (USA).
Offshore Rig Update
The global committed jackup count totalled 401 units in March, two rigs lower than in February. The marketed available and cold-stacked jackup counts now stand at 35 and 57, respectively. Marketed, committed utilisation maintained at 92%, while total utilisation dropped to 81%. During the month, a total of 12 new contracts were awarded and one contract option was exercised, amounting to 3,749 days (10.3 rig years) of backlog added. Drilling activities off Egypt accounted for 27% of total awarded days, including the Admarine 260 fixture for Burullus Gas for 570 days starting in 2H 2023.
The global committed semisubmersible (semi) count dropped by one to 68 during March. There are 12 available and 15 cold-stacked rigs remaining in the fleet. Marketed, committed utilisation and total fleet utilisation dipped slightly to 85% and 71%, respectively. Equinor awarded multiwell contracts to Transocean Encourage and Transocean Enabler to drill in the Norwegian and North Seas, commencing in direct continuation of their current eight-year contracts that end in December 2023 and April 2024, respectively.
Finally, drillship demand sustained at 80 units over the month, leaving only three marketed units available plus 13 rigs cold stacked. Marketed, committed utilisation and total fleet utilisation remained at 96% and 83%, respectively. There were four new contracts awarded in March, totalling 2,209 drilling days (6.1 rig years). Newbuild Stena Evolution has been confirmed for a multi-year contract with Shell in the US Gulf of Mexico starting in 2Q 2024.
Offshore Wind Update
Since the last update, Siemens Gamesa has signed a GBP1.3 billion (US$1.6 billion) contract with Scottish Power Renewables to supply 95 units of its SG 14-236 DD wind turbines for the 1.4GW East Anglia Three wind farm, located offshore UK. The turbines will have an individual capacity of 14.7MW and the contract also includes an eight-year service agreement.
Final Investment Decisions (FID) have also been taken on several projects since the last update. FIDs have been taken on the 960MW He Dreiht project in Germany, the 496MW Noirmoutier project in France and the Greater Changhua 2a and 4 wind farms in Taiwan. The Greater Changhua wind farms will have a combined capacity of 920MW.
Dominating headlines was news that a total of 13 projects have been selected by Crown Estate Scotland in the Innovation and Targeted Oil & Gas (INTOG) leasing round. Exclusivity Agreements have been offered to the successful applicants. A total of five projects have been selected under the Innovation (IN) portion and the remaining eight have been selected for the Targeted Oil & Gas (TOG) portion of the auction.
Finally offshore wind tenders have been launched for the first time in Lithuania and Norway. Lithuania launched its first offshore wind tender for a 700MW project in the Baltic Sea after the government approved the requirements for bidders. In Norway, tenders have been launched for the rights to develop the first phase of Sørlige Nordsjø II and three sites across the Utsira Nord offshore wind area.
Westwood Global Energy Group are specialist providers of detailed market intelligence for the offshore energy sector, covering; offshore rigs, production facilities, subsea equipment, subsea services, offshore marine and offshore renewables and power.
