The 10 largest Canadian oil and natural gas producers by market value scored an average 31.7 out of 100 on environmental-performance disclosures in 2011, the last year with information for all companies, according to data compiled by Bloomberg. The Environmental Disclosure Scores weigh information such as emissions, spills and water use.
The Canadian scores lag behind those of some of their largest U.S. and European competitors, including 54.6 (XOM) for Irving, Texas-based Exxon Mobil Corp., the world’s biggest energy company, 48.8 (RDSA) for Europe’s No. 1 oil producer Royal Dutch Shell Plc, and 62 (BP/) for London-based BP Plc, which has taken a charge of $42.5 billion related to the 2010 Gulf of Mexico oil-spill disaster.
Canadian oil-sands producers are under pressure from domestic regulators, environmentalists and the European Union, which is considering legislation that would penalize Albertan crude for being more carbon-intensive than conventionally produced oil. The scrutiny is slowing proposals for pipeline developments like TransCanada Corp. (TRP)’s Keystone XL, which would connect Alberta to the U.S. Gulf coast, and Enbridge Inc. (ENB)’s Northern Gateway, which would traverse the Rockies enroute to British Columbia’s Pacific coast.
‘Noose Is Tightening’“Canada right now is facing potential limitations on market access, ongoing controversy around oil-sands production and we’re also seeing opposition to pipelines,” said Bob Walker, a vice president at NEI Investments in Vancouver, which oversees C$5.5 billion ($5.2 billion) in assets, including Suncor shares.
“It feels like the noose is tightening on this industry and part of the problem is that it doesn’t have a strong narrative for what it’s doing for the environment,” Walker said in a telephone interview. “People want to see the proof.”
Bloomberg’s environmental risk scorecard, which is a component of Environmental, Social and Governance disclosure data, measures companies’ management of non-financial environmental information with an impact on reputation and value. Bloomberg collects company-sourced data from corporate social responsibility reports, annual reports and proprietary surveys and organizes the information according to metrics appropriate for each industry. Bloomberg’s ranking places different weighting on different data provided by companies.
Greenhouse GasesSuncor, the biggest Canadian energy producer, and Calgary-based Imperial Oil, which is a unit of Exxon, were among the four Canadian companies with disclosure scores higher than 35 in 2011. None of the 10 scored higher than 50.
According to the most recent filings, Canadian oil and gas producers with a market value of more than $2 billion had an average Environmental Disclosure Score of 13.6, data compiled by Bloomberg showed. That compares with 18 for U.S.-based producers and 34.5 for their peers in Europe, according to the data. Spain’s Repsol SA and New York-based Hess Corp. were tied with the world’s top score of 78.5, according to the data.
“Our efforts on corporate sustainability reporting continue to evolve and we strive to improve that reporting and make it better every year,” Pius Rolheiser, an Imperial spokesman, said in a phone interview.
Stock Impact“With transparency comes accountability,” Arlene Strom, vice president of sustainability at Suncor, said in a Nov. 1 interview. “I think we are quite transparent on the environmental front and reporting GHGs. We look at stakeholder feedback every year to find out what it is they want us to be reporting.”
Environment-related issues are increasingly having an impact on share prices of oil companies. Shares of Canadian Natural Resources Ltd. (CNQ), which had a Environmental Disclosure Score of 40.5 in 2011, fell 4.5 percent following a July 26 announcement that the Alberta Energy Regulator told the company to restrict steam injections at its Primrose and Wolf Lake projects after a bitumen leak was reported at Primrose in June. The stock has risen 1.3 percent since the announcement, compared with a 2.9 percent increase in the Standard & Poor’s/TSX Energy Index.
Canadian Natural declined to comment on the company’s reporting score and said it plans to release a sustainability report for 2012 in the coming weeks.
Scraping BitumenCanadian Natural rose 1.1 percent to C$32.97 at 10 a.m. in Toronto, while Suncor gained 0.8 percent to C$36.41 and Imperial increased 0.6 percent to C$44.59.
The intensity of greenhouse gases in Canadian energy company’s emissions rose 21 percent from 2008 to 2012, while use of fresh-water also increased, the Canadian Association of Petroleum Producers said in a Nov. 5 report.
The deteriorating performance follows a report by Environment Canada last month that greenhouse-gas emissions will rise by 2020 in the country, missing a target to cut output 17 percent by that date, mainly because of oil and gas expansion.
“The oil-sands industry will be judged on the performance of the worst performer and cumulative impacts of all projects together, so while individual leadership reporting adds value and is welcome, mitigating actual environmental impact is more important,” said Jennifer Grant, director of oil-sands research at Calgary-based environmental consultants Pembina Institute.
Keystone XLExtracting crude from the oil sands involves scraping or steaming the paste-like bitumen and then softening it to make it flow though pipelines.
Studies show 8 percent to 37 percent more carbon is released to produce and bring a gallon of fuel from the oil sands to the market compared with conventionally produced fuel, according to a review by Pembina Institute. That’s because it takes more energy to extract and refine the oil-sands bitumen than lighter crudes.
Compared with the U.S., oil-sands crude is on average 9 percent more carbon intensive than the U.S. average on a wells-to-wheels basis, which measures CO2 emissions from the start of oil production through to combustion, according to the Canadian Association of Petroleum Producers report.
The scrutiny on oil producers has put more pressure on pipeline companies planning to ship Alberta’s oil abroad.
‘Doing More’U.S. President Barack Obama has said he won’t issue the permit TransCanada needs to build the $5.3 billion Keystone XL pipeline if it would significantly worsen global warming. In a July 28 interview with the New York Times, Obama said that Canada “could potentially be doing more to mitigate carbon release.”
The U.S. State Department is currently reviewing the pipeline project.
TransCanada is revamping its own sustainability reporting with more detailed environmental information by the end of the year, Kelly Matthews, the company’s senior corporate sustainability adviser, said in an interview. The pipeline operator, which scored 9.3 in 2011 on the Bloomberg assessment, expects stiffer sustainability reporting from regulators in the coming years.
“Our environmental performance is excellent, but we’re not great about telling people about it,” Matthews said. “Stakeholders are looking for transparency and how to assess risk. There’s a growing attitude that this is part of business as usual.”
Fort HillsCanadian companies are required to disclose environmental, social or governance performance to shareholders under security regulations if it is deemed to be “material information” that could affect the market price of a company’s shares, according to TMX Group Inc., the operator of the Toronto Stock Exchange.
On Oct. 30, Calgary-based Suncor said it will go ahead with the C$13.5 billion Fort Hills oil-sands project with partners Total SA (FP) and Teck Resources Ltd. The oil producer has scored 38.8 on the Bloomberg assessment for the past three years.
The Fort Hills mine will use so-called TRO (tailings reduction operation) technology, which dries up toxic waste from processing bitumen, in an effort to meet Alberta regulations on management of mining waste, Chief Executive Officer Steve Williams said on an Oct. 31 conference call.
The Canadian oil producer aims to reduce fresh water consumption by 12 percent and boost energy efficiency by 10 percent by 2015 from 2007 levels. The company also is a founding member of the Canadian Oil Sands Innovation Alliance, a group of oil-sands producers that share technology related to environmental performance.
Presenting investors with information about performance allows them to make more informed decisions, said NEI Investment’s Walker. Eventually, companies will “deal with” emissions or other environmental issues after they report performance, he said.
“We’re not seeing this as much in the oil and gas sector,” he said. “This is an industry that is expanding and there is going to be an increase in carbon emissions.”