Joanne Edgeler, Senior Investment Manager with the UK's North Sea Transition Authority (NSTA, formerly known as the Oil and Gas Authority), and chair of its ESG Taskforce, wrote a letter to all UK operators (licensees) on March 31 2022 encouraging better ESG reporting.

She wrote, "consistent and high-quality, authentic, ESG reporting, backed up by a strong evidence base and superior quality supporting narrative, is important to the ongoing health of the industry because of the important and growing role it plays in attracting debt and equity investment and because of the role it plays supporting the industry's social licence to operate."

"Recognising the importance of ESG reporting, but also recognising the extra burden high-quality reporting places on licensees, the North Sea Transition Authority has worked with licensees, through the NSTA ESG Taskforce, to monitor the evolution of key ESG requirements, and to recommend a standardised approach to ESG reporting," she said.

It should make it easier for licensees to report, and then "maintain the industry's attractiveness to both debt and equity investors and to help protect the industry's social licence to operate."

The letter notes that there was a "a significant number of new financial reporting policy initiatives announced" in 2021, including the UK Government's Net Zero Strategy and Greening Finance Roadmap, a new International Sustainability Standards Board ("ISSB"), a Taskforce on Nature-related Financial Disclosures, and a Social Taxonomy which intends to set out a global standard for what "good" looks like on social issues.

WHERE NEXT? 

So where does a company go next? Many North Sea operators have Sustainability Reports or at least report many ESG factors in their Annual Reports. There are countless efforts from industry entities such as IOGP, IPEICA and API and international organisations such as the Global Reporting Initiative and Carbon Disclosure Project that have recommendations regarding what and how to report ESG factors and increasingly Greenhouse Gas emissions.

That leaves the company and the NSTA to make a lot of judgements about what is enough.

NSTA's ESG TASK FORCE

NSTA's ESG Task Force was established in Sept 2020 to support licensees to "interpret, harmonise and enhance" ESG reporting, including with standardised metrics. The Task Force seeks to be a bridge between industry, the NSTA and investors. It is initially focussing on the "E" (environment) part of ESG.

RECOMMENDATIONS

Its 2021 'quantitative' recommendations are that companies should provide HSE stats, fugitive emissions data, venting / flaring data, scope 1 and 2 emissions (emissions from operations the company directly controls, such as running compressors and pumps), air and water pollution risks, waste management and disposal, and a calculation of carbon intensity of production in terms of CO2 volumes per barrel produced.

Added to this are 'qualitative' regulations such as board oversight, action plans, descriptions of targets and environmental / HSE polices. Companies were expected to follow Tier 1 over 2021 and 2022.

Then there are 'tier 2' recommendations, designed as medium to long term metrics, including emission targets linked to management KPIs, reporting to be aligned with the Task Force on Climate-Related Financial Disclosures (TCFD), counting 'relevant' scope 3 emissions, having a strategy for renewables (or explaining why you can't do it), and having senior people dedicated to environmental issues.

NSTA published "governance guidance" in January 2022. It notes that - basically - OGA (now NSTA) will not systematically monitor company's compliance, or generally impose that they report on their compliance, but it will look out for actions that it considers inconsistence with the guidance, and review governance as part of the consenting and authorisation processes. Which sounds like - you will mainly be assessed on this when you are looking to take over another block.

OUR VIEW

It seems to Future Energy Partners (FEP) that each company operating in the UKCS will be assessed and ‘regulated’ on its own merits. Isn’t it time to get much more specific and formal?

However it means that UKCS progress will be uneven on the journey to ‘net zero’ by 2050. Never mind the impact of moving from Russian hydrocarbon supplies to alternatives. More and specific direction would certainly help.

KeyFacts Energy Industry Directory: Future Energy Partners