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How Grey is your Oil and Gas Investment?

As the emphasis on the energy transition increases, companies around the world have placed greater importance on their carbon emissions and many have set net-zero emission targets. This push has also extended to the financial community. An example of this is the UN Net-Zero Banking Alliance1, made up of 59 Banks which have a total of US$39 Trillion in assets, accounting for about 25% of the world’s banking assets. The Alliance sees its signatory banks setting net-zero targets for 2050, by aligning their lending and investment portfolios. A similar push towards carbon neutrality has developed in the Asia Pacific. A BNP Paribas survey2 showed that 47% of institutional investors in the region have made commitments to align their investment strategies with the 2050 goal. Notably, one of the cited challenges and a barrier for further adoption of ESG in the survey was data availability.

In the financing of oil and gas assets, there have been various methodologies used for the valuation of loans and equity, but most revolve around Reserves and production. An example of this is Reserve Based Lending, where loans are made against developed or undeveloped reserves and repaid using proceeds from production. In line with the push towards carbon neutrality, the greenhouse gas emissions related to production from the assets have become a key component in any lending or investment decision.

Figure 1: Example of emissions and production forecasts

Currently, some exploration and production companies release Scope 1 and 2 emissions as part of their annual sustainability reporting or part of a bond prospectus. Despite the increased standards of emissions reporting, companies do not report a forecast of their future expected emissions, but emissions for the year before.

Future revenues and production form the basis of any financing or investment decision. Similarly, a forecast of future emissions must be evaluated. This is especially relevant for companies that have plans for production growth or the financing of development assets, as future emissions would likely be different from that of the past. The recent COP26 announcement of the creation of the IFRS Sustainability Standards Board (SSB) is significant in respect to emissions forecasting. This will consolidate the Climate Disclosure Standards Board and the Value Reporting Foundation within the (SSB)3. Therefore, future climate risk assessment will become codified within the IFRS framework. As approximately 120 nations adopt IFRS for reporting4, the formation of this SSB will have wide reaching effects.

Figure 2: Example of reported GHG emissions – Royal Dutch Shell5

There are various methodologies and approaches used to incorporate carbon emissions into an investment evaluation. Institutional investors may evaluate emissions using a portfolio approach, where an organization sets a total emissions threshold or target for the entire portfolio. Others may use measurement metrics such as carbon energy intensity and limit investments in projects that are over a certain rate.

According to Rystad Energy6, the global CO2 intensity average from oil and gas production is estimated to be 18-19 kg/boe. Notably, CO2 intensities differ from project to project based on the location as well as the infrastructure built around the field of production. On average, onshore producers have a higher carbon intensity, with production from oil sands averaging 73 kg/boe, and conventional onshore producers averaging 19kg/boe. In the offshore segment, the average intensity was reported to be approximately 17kg/boe, where best-in-class operators like Neptune, Sakhalin and Aker BP have average intensities of 7kg/boe. In the article, Rystad did not disclose how CO2 intensities were defined in the reported numbers. However, Equinor had reported a similar global CO2 intensity average, of 17 kg/boe, based on scope 1 emissions7.

Given the wide range of carbon intensities, it would be insufficient to use an average benchmark as a basis for an evaluation. Average benchmarks will also be constantly changing as the industry shifts towards reducing emissions. Greater emphasis will be placed on accuracy, with the development of emissions reporting standards around the world.

Table 1: Example emissions in an Upstream project

Various parties will be able to provide carbon emissions forecasts as an integrated offering with their  Reserves and Resources disclosures, so that their stakeholders can make an informed decision. In addition to investment or lending decisions, companies may want an accurate set of emissions to calculate and evaluate options for carbon offsets or to give stakeholders greater transparency.

Bondholders and buyers are one of the stakeholders that have been under pressure to curb lending based on carbon emissions and climate change concerns and would likely be pushing for greater transparency and increased reporting in its holdings. For example, Riksbank, Sweden’s central bank, has ditched bonds issued by Australian and Canadian regions on the grounds of high carbon emissions8.

There is also a growing trend of stock exchanges imposing mandatory climate-related disclosures for companies listed on its index, hoping to enhance the transparency of information for investors. For example, in Asia, the Singapore Exchange (SGX) has joined the Stock Exchange of Hong Kong to introduce and tighten its mandatory disclosure requirements9.

ERCE can provide GHG Inventory Assurance and Advisory Services and has experience in performing independent emissions lifecycle forecasting. We are ready to help if you are interested in developing a climate action strategy or in need forecasting and auditing services.

Please get in touch to find out how we can help you to navigate through the energy transition.


[1] Net-Zero Banking Alliance. Retrieved from UN environment programme:

[2] APAC investors lead global peers in aligning with net-zero goal- BNP Paribas: Retrieved from S&P Global:  

[3] An update on the ISSB at COP26: Retrieved from IFRS:

[4] IFRS FAQ: Retrieved from IFRS:,such%20conformity%20in%20audit%20reports.

[5] Greenhouse Gas Emissions: Retrieved from Royal Dutch Shell:

[6] An analysis of the upstream industry’s dirty laundry: Retrieved from Rystad Energy:

[7] Reducing our greenhouse gas emissions: Retrieved from Equinor:

[8] Riksbank dumps Canadian and Australian debt in green push: Retrieved from Financial Times:

[9] SGX joins Hong Kong exchange in moving to tighten climate rules: Retrieved from Nikkei Asia: