NEW YORK and DENVER, June 3, 2021 /PRNewswire/ -- Kimmeridge Energy Management Company, LLC ("Kimmeridge"), a private equity firm focused on upstream energy, with an investment philosophy underpinned by fundamental research, today published a white paper entitled: "Why the Energy Industry Needs a Carbon Offset Exchange."
Contrary to popular belief, little has happened in the past year to quell the world's thirst for oil. With global lockdowns and limited vapor trails overhead, in 2020 oil demand declined just 9% versus 2019. As global demand for fossil fuels is expected to remain robust over the next decade (and likely longer), reducing the carbon intensity of the oil and gas industry is essential – and the industry is already starting to make progress.
Market participants are increasingly measuring their carbon emissions and managing their operations more sustainably as part of a broader push to embed ESG principles into the E&P business model. However, even with these positive developments, there are two main impediments to the industry's momentum:
- Lack of uniformity in E&P companies' goals / plans.
- Absence of explicit economic incentive for such companies to reduce their GHG emissions.
Despite their central role in the environmental debate, E&Ps have no way of generating offsets from reducing emissions, or even from keeping hydrocarbons permanently in the ground. The current rules governing offset projects are too cumbersome, bureaucratic and academic, and hinder the potential for meaningful emissions reductions from the industry.
Within its paper, Kimmeridge describes these obstacles in detail and presents practical, industry-wide solutions to facilitate the goal of net-zero, namely:
- E&Ps must commit to an independently verified reduction in the carbon intensity of their production of 50% by 2030.
- The creation of an O&G industry-wide offset exchange to facilitate carbon trading.
Ben Dell, Founder and Managing Partner of Kimmeridge, said, "We believe that an industry incentivized to get to net zero through its own actions, and not just through planting trees, is the right and necessary path forward for E&Ps. At present, there is no compelling incentive structure that encourages oil & gas companies to actively reduce emissions and no platform that points them in the direction of a clean energy future. The industry must therefore take emissions reduction targets and the ability to offset emissions into its own hands.
As Kimmeridge and many others have witnessed in recent years, the principles articulated in our white papers continue to be acknowledged and endorsed by those seeking to adopt a new E&P business model that would make the sector investable now and well into the future. Without critical reforms like these, the industry will remain mired in quicksand, struggling to attract capital and unprepared for the future of energy."
Kimmeridge has seen first-hand, through the firm's own investments, that genuine commitments to measurable emissions reductions are indeed feasible for the industry. A clear example is Civitas Resources, a leading E&P in Colorado's DJ Basin, which is slated to begin life as a public company later this year as the state's first net-zero oil & gas producer (on a scope 1 and 2 basis). As presented in this paper, where there is a will, there is a way.
Kimmeridge's Research and Writings
This most recent paper builds on Kimmeridge's prior research, including its well-received research on "Charting a Path to Net Zero Emissions for Oil & Gas Production," which lays out the five key principles the E&P sector must adopt to address its environmental deficiencies and become investable over the long-term. To view more of Kimmeridge's research and thought leadership, please visit http://kimmeridge.com/research-archive/.
Founded in 2012 by Ben Dell, Dr. Neil McMahon and Henry Makansi, Kimmeridge is a private equity firm focused on making direct investments in unconventional oil and gas assets in the U.S. The Firm is differentiated by its direct investment approach, deep technical knowledge, active portfolio management and proprietary research and data gathering. In addition to its New York headquarters, Kimmeridge maintains a fully-staffed, in-house operating and geology team in Denver, with experience across all major upstream functions and disciplines. For additional information on Kimmeridge and its proprietary research, please visit www.kimmeridge.com.
Daniel Yunger / Simone Leung / Hallie Wolff
SOURCE Kimmeridge Energy Management Company, LLC