US Oil and Gas Producers Explain How ESG is Driving the Energy Business Forward

When it comes to climate action, the oil and gas industry is often blamed for not telling its side of the story and finds itself battling varying public opinions.

Over the past few years, however, the growing popularity of ESG has prompted U.S. oil and gas producers to talk publicly not just about their environmental stewardship, but also societal and governance progress.

“ESG starts with an E, but definitely shouldn’t end there,” said Brian Cain, chief sustainability officer with Civitas Resources, adding that the oil and gas companies have a “rich history” of heavily investing in supporting its communities.

Growing up in Houston, Cain looked up to some of the greatest philanthropists from the U.S. shale industry who have helped build the community.

“Of course, I think of George Mitchell and Rich Kinder, and I think of all those industry giants who have given back to their communities in such a meaningful and significant way. As an industry, we need to continue doing that,” Cain said.

As Colorado’s first carbon-neutral producer, Cain said Civitas Resources is constantly working toward a “step change” in reducing its carbon footprint.

Last year Bonanza Creek Energy officially rebranded as Civitas Resources following Bonanza Creek’s merger with Extraction Oil & Gas and subsequent acquisition of Crestone Peak Resources. Civitas is now the largest pure-play energy producer in Colorado’s Denver-Julesburg Basin, operating across more than half a million net acres with an enterprise value of $4.5 billion.

“Of course, I think of George Mitchell and Rich Kinder, and I think of all those industry giants who have given back to their communities in such a meaningful and significant way. As an industry, we need to continue doing that.”—Brian Cain, Civitas Resources

Compared to its peers in the small and midcap segment, Cain noted that Civitas’s ESG and carbon neutrality strategy is “much more progressive,” ensuring credibility of its carbon offsets and transparency in climate disclosures, which he noted is reported in three different indices including SASB, TCFD and AXPC formats.

So what is the company’s low-carbon strategy?

“For Scope 1, first and foremost, we want to work on reducing operational emissions, and then secondarily offsetting or displacing those residual, remaining emissions that can’t quite yet be operationally reduced through technology or other means,” Cain explained. “We offset Scope 2 by using only green e-certified RECs [Renewable Energy Certificates], which historically we’ve only purchased from the Rockies sub-grid region as a best practice.”

Additionally, Civitas is working on electrifying its operations, moving them from Scope 1 to Scope 2, which Cain said offers numerous benefits for both the environmental and social aspects of the business.

“As we move things from Scope 1 to Scope 2—like our drilling rigs, which we want to power on highline electricity wherever we can—we’re reducing emissions by 20-30%, but also taking away all the backyard of generators that are creating emissions in a community and moving that emission source to the power plant,” he said. “So you’re taking those emissions completely out of that community or that area where you operate, which is the best thing for your landowner and for your neighbors and for the folks around it.”

This also eliminates truck trips to fuel the drilling rig generators, reducing traffic and the related combustion emissions associated with the traffic, Cain added.

Earlier this year, Civitas announced its commitment to voluntarily plug 42 wells that were orphaned by previous operators in Colorado.

It’s worth noting that the orphaned wells are unrelated to Civitas and were abandoned by their former operators and whose cleanup would otherwise be the responsibility of the state of Colorado.

Commenting on the commitment, Cain said, “We know that the state is going to get federal dollars to address the orphaned well situation, but those federal dollars won’t cover all of the orphaned wells in Colorado. By plugging these wells in our operating area, we’re also effectively plugging the orphaned wells that are around the populated areas of our state, around the greater Denver area and the northern Front Range of Colorado.”

He continued, “From an environmental standpoint, it eliminates any emissions that could be coming from those older wells that are often in various stages of disrepair or were, frankly, irresponsibly abandoned in some cases.”

This commitment not only provides environmental benefits but also checks the social aspects of ESG, Cain said.

Taking charge

When Ted Wurfel was appointed as the vice president of ESG and sustainability with Rockcliff Energy in October 2021, he was tasked with building a department that would continue to expand the company’s ESG program. Within three months, Wurfel appointed two individuals to the team and set some concrete ESG goals for the company.

“One of the key ways that companies can demonstrate their commitment to ESG is to dedicate the necessary resources,” Wurfel told Hart Energy.

“Rockcliff clearly understands the importance of ESG,” he said, adding that the company has developed key performance indicators for 2022 focused on a variety of ESG categories including greenhouse-gas and air emissions reductions, water conservation, employee health and safety, diversity, equity and inclusion, ESG data monitoring and reporting, and cybersecurity.

While stakeholders, investors and local landowners are concerned about ESG and climate change issues and want to understand how the industry is addressing them, Wurfel believes that U.S. shale producers are “very aware” of these concerns and are taking active steps toward achieving ESG goals.

He also noted that the only way for the U.S. oil and gas industry to maintain trust and improve understanding among stakeholders is to be open and transparent about their ESG journey, which involves reporting of metrics, benchmarking with peers and continuous improvement.

“One of the key ways that companies can demonstrate their commitment to ESG is to dedicate the necessary resources.”—Ted Wurfel, Rockcliff Energy

The Houston-based company keeps four rigs and two frac crews busy exploiting 156,000 net acres in the Haynesville where the company has identified more than 1,000 future well sites.

To ensure responsible production across its Haynesville development, the natural gas producer has partnered with Project Canary to deploy an active emissions monitoring system at well pads. Denver-based Project Canary has developed a stringent well-by-well system of monitors that monitors methane emissions and standards of natural gas drillers.

Wurfel explained that by the end of March 2022, active emissions monitoring will be in place for all of Rockcliff’s Haynesville wells, which represents 95% of Rockcliff’s natural gas production, allowing them to monitor facility emissions, set alarms for operations that are outside the normal operating range and provide data to track and trend emissions over time.

Last year Rockcliff hit several ESG milestones, Wurfel said.

“On our completions side, we reduced diesel fuel use by 40% by converting to bi-fuel engines, and on our drilling side, all four rigs are running bi-fuel engines,” he added.

Additionally, since the company transports 97% of its produced and flowback water by pipeline, it has reduced the annual truck traffic by roughly 180,000 truckloads or about 3.5 million miles per year.

‘Transformed the industry’

With more than $15 million of investments in tackling methane emissions and another $2 million set aside per year for community outreach programs, Diversified Energy CEO and founder Rusty Hutson, Jr. is certain his company is ahead of the curve in its ESG efforts.

He strongly believes that ESG has transformed the U.S. oil and gas industry and is going to impact every aspect of the business moving forward.

“If you want access to capital availability, you need to have a plan in place and show [ESG] progress,” Hutson said.

Established in 2001, Alabama-based Diversified has acquired tens of thousands of mature wells from the region’s biggest shale companies, beating Exxon Mobil to become the largest well owner in the country. The company operates about 69,000 oil and gas wells mainly in the Appalachian region with a heavy focus on natural gas production.

“If not Diversified, then who?” Hutson asked. “If we are not the ones acquiring these wells and making sure we spend capital on maintenance and keeping them in production for as long as we possibly can, then who will?”

He explained that extending the productive life of existing wells lessens the need for drilling and fracking of new wells to meet the country’s energy needs.

“We go and acquire wells that are typically three to five years of age,” he said. “We operate the wells more efficiently and enhance production on these wells.”

Doing so is a key part of Diversified’s ESG strategy to keep the wells in production and provide a safe and systematic way to retire them at the end of their economic life.

Being listed on the London stock exchange, Hutson said his company has “zero tolerance” for emissions and calls it the “stepchild in the room.”

He added, “We have no tolerance for methane emissions. Period. If we find emissions, we fix them.”

Last year Diversified announced plans to deploy 500 methane emissions detection devices to its Appalachian upstream field operations team as a part of the company’s broader ESG initiatives. Prior to the announcement, the company had deployed 100 devices across Appalachia and proved to be effective in identifying small emissions for trained well tenders to eliminate at little-to-no incremental cost.

“We have no tolerance for methane emissions. Period. If we find emissions, we fix them.”—Rusty Hutson, Jr., Diversified Energy  

The company has also partnered with Bridger Photonics, a provider of methane leak detection technology, to perform multiyear aerial scans of Diversified’s natural gas production and distribution assets starting with the Appalachian region.

Skills, resources amplify ESG

Sentinel Peak Resources CEO Michael Duginski believes that his company is uniquely positioned to address climate change risks because of its vast acreage position and targeted expertise.

The private equity-backed company, focused on acquisition and development of oil and gas assets in California, operates about 94,000 acres of land, out of which the company has dedicated about 1,800 acres to conservation easements and habitat conservation plans. The company also conducts biodiversity impact assessments before operating in new areas to minimize environmental impacts of development.

Additionally, Sentinel Peak has aligned its strategic goals with localized needs, creating an affordable housing development in Los Angeles at the location of a former urban drill site with potential for a second future affordable student housing project in the works at a second urban drill site location that is in the final phases of abandonment, Duginski explained.

In the 500-acre Montebello oil field, located 15 miles west of Los Angeles, Sentinel has worked to redevelop the majority of the former oil field. Construction is underway on 1,200 new housing units serving a wide array of socioeconomic needs, while also offering approximately 270 acres of permanent conservation land and more than 20 acres of new public open space including 11 acres of parks and 9.5 miles of trails.

Although California is one of the world’s great oil provinces, it is known for its stringent environmental regulations and policies for fossil fuel production, making oil producers in the region more focused than ever toward ESG goals, Duginski said.

“I don’t think people understand how regulated the business is here compared to the barrels that are produced in the Middle East, South America or Russia.”—Michael Duginski, Sentinel Peak Resources.

“From a regulatory and governance perspective—and this is very important—California crude is the most environmentally sensitive and regulated oil production in the world,” he said. “We report to dozens of regulatory agencies, comply with Assembly and Senate bills in the state of California and submit over 600 regulatory reports per year.”

Explaining the company’s commitment to ESG, Duginski pointed out how Sentinel Peak is actively addressing the risks that climate change poses to the planet and to its business and has been focused on that mission since its inception in 2017.

“I don’t think people understand how regulated the business is here compared to the barrels that are produced in the Middle East, South America or Russia,” he said.

An honoree of Hart Energy’s 2021 ESG Awards in the private E&P category, Sentinel Peak is implementing a three-part plan to reduce its carbon footprint and achieve carbon neutrality for greenhouse-gas emissions by 2030 through improved efficiencies, adopting alternative energy sources and deploying new innovative technologies.

“We’re very focused on the intelligent oil field,” Duginski said. “We are using machine learning and artificial intelligence to improve our efficiencies, which has reduced our emissions dramatically. We have permanently reduced almost 200,000 tonnes of CO₂ annually through these initiatives.”

He went on to explain how Sentinel Peak is minimizing its water use and impact, and it has made drastic improvements to the community by becoming a net supplier of water to the state of California.

The majority of water that the company uses for its operations comes from non-potable sources, including produced water from its wells. Additionally, since the beginning of last year, Sentinel Peak is providing more freshwater than it consumes through produced water reverse osmosis and ultrafiltration treatment, a process that recycles water to benefit aquatic life and support local habitat.

Additionally, the company is working on new technology for its underground carbon capture and sequestration (CCS) project.

“We have partnered with some of the leading agencies specializing in cutting-edge technology and academics to move forward with carbon capture projects and are making significant progress,” Duginski said.

Despite the progress, he noted that there remains significant opportunity for the energy industry to reduce carbon emissions.

“The oil and gas industry is uniquely positioned to help states and countries meet their CO₂ reduction goals,” he said. “Think about it. We not only have the engineering, the technology and systems to capture carbon, but we also have the mineral and land resources to physically store carbon permanently underground. And we have geologists and engineers to design those systems and ensure the safety of these storage methods to make a material positive environmental impact of our own operations and consumption of energy but also for a multitude of other industries that emit carbon.”

As demand for oil and gas continues to increase, Duginski stressed that policymakers should embrace the oil and gas industry as both providers of transportation fuel and other products that the world is demanding while also serving as the gateway to global carbon reduction goals through CCS.