ESG Opportunity for Water Management Emerges in Permian Basin

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Water management in the Permian Basin has grown dramatically in the last decade. In 2019 alone, 8 Bbbl of produced water were generated—enough to fill four Empire State Buildings to the brim every day. In recent years, increased social awareness and investor concerns on ESG factors have intensified. The drive for related ESG metrics, particularly as they relate to water management, presents an opportunity for the oil and gas industry to assign objective value to environmental stewardship and reinvigorate its social license to operate.

There is a concerted effort in the financial space to mainstream the use of ESG factors, which are intended to convey value associated with environmental conservation, treatment of people and communities, and ethical standards of operation. A recent study shows ESG fund investments have increased by 46% between 2018 and 2020, and companies pursuing ESG initiatives and subsequent disclosure gain an advantage in this new environment. On the other hand, companies that do not track and report these non-financial metrics may find themselves discounted by investors and susceptible to long-term environmental and operational risk.

The energy industry faces challenges to advancing ESG as a broad business discipline, starting with reporting. Oil and gas companies that currently publish corporate sustainability reports use frameworks and metrics that are generally vague, inconsistent and difficult to compare. The ambiguity comes in large part from the non-standardized definition of ESG metrics, unverifiable quality of data used to document performance, the discretionary nature of disclosures, and the biases related to company operations’ location, size and scope. And while ESG reporting has focused on a small subset of environmental issues, attention to water-related matters grows every day.

ESG metrics

B3 Insight recently analyzed the state of water-relevant ESG reporting for companies with significant water management operations in the Permian Basin. As of August 2019, 140 companies accounted for 95% of Permian Basin water injection, although there are roughly 780 companies injecting water in the region. Of those 140 companies, only 26 organizations provided water management-relevant data in corporate sustainability or investor relations reports. These 26 companies represent a diverse range of ownership, location, structure, size and services provided, and the data included in their reports reflect that variety.

Unsurprisingly, as company operations vary wildly, so did the water-related metrics used in their reports, making quantitative comparison of management and stewardship nearly impossible. A standardized framework is essential to ensure that benchmarking and peer-to-peer comparison is possible, allowing companies and investors to better understand specific operator performance relative to the market.

Furthermore, the traditional one-size-fits-all approach to ESG reporting is insufficient and reduces the usefulness of metrics to reach financial and sustainability goals. Context is crucial, and the definition of ESG standards and reporting particular to water management should have guidance from the industry to ensure decision-usefulness.

Advancing water stewardship

Following more than a year of intensive research and interviews with diverse stakeholders, B3 Insight created the Oilfield Water Stewardship Council (OWSC) to establish best practices for water-related ESG reporting. The OWSC serves as a community of practice for the industry to establish and standardize relevant ESG metrics. Joined by founding members including Pioneer Natural Resources, EagleClaw Midstream, Breakwater Energy Partners, Solaris Water, Goodnight Midstream, Pearlsnap Midstream and H2O Midstream, the OWSC is poised to consolidate industry expertise to derive actionable industry standards.

B3 CEO and Co-founder Kelly Bennett said, "This program is a commitment by B3 and its members to put words to action through collaboration and transparency to create meaningful solutions.”

OWSC members meet regularly to discuss specific aspects of the industry and refine the relevant metrics needed to measure water stewardship initiatives accurately, comprehensively and comparably. The first objective of the OWSC is to address the fundamental deficiencies in water-related data and ESG metrics, which render much of today’s information inadequate for decision-making.

The OWSC’s vision is to advance water stewardship in the oil and gas industry with actionable tools and practical information. Standards will align with prominent sustainability reporting frameworks such as the Sustainability Accounting Standards Board (SASB) and Global Reporting Initiative (GRI). The tools and standardized metrics will be useful for a diverse array of industries and groups, including investment firms, to confidently assess ESG performance, track improvements and guide investment decisions.