Kimmeridge Publishes White Paper: "Why Net Zero Should Be the Standard for the E&P Sector"

Provides pathway for setting credible net zero targets by 2030, supported by transparency and accountability

Advances responsible production, not wholesale abandonment of oil & gas, as part of the long-term energy mix

NEW YORK and DENVER, July 14, 2022 /PRNewswire/ -- Kimmeridge, a private investment firm focused on the energy sector, today published a white paper entitled, Why Net Zero Should Be the Standard for the E&P Sector. This report builds on several other white papers from Kimmeridge that have contributed to the evolution of the E&P business model. The firm's research and industry engagement have focused on the need for meaningful change, including prioritizing profitability, aligning management incentives and promoting sustainability through carbon neutrality. Kimmeridge has directly implemented these reforms through its leadership role at Civitas, Colorado's first carbon neutral oil & gas company.

In this follow-up to Kimmeridge's September 2020 paper, Charting a Path to Net Zero for Oil & Gas Production, the firm acknowledges that the energy sector has made encouraging steps towards reducing the industry's environmental footprint. However, efforts to date have been inconsistent and difficult to compare between companies. Only 13 E&Ps have established net zero targets—with varying definitions, pathways and timelines, which range from "now" to 2050.

Through data-driven analysis of sustainability disclosures from 33 publicly traded E&Ps, the firm's paper assesses the current state of play in the industry and recommends a holistic approach to facilitating large-scale adoption of net zero targets. To this end, Kimmeridge calls for greater transparency around existing environmental targets, more aggressive commitments going forward and a greater sense of urgency around the timelines for execution. In practice, E&Ps must demonstrate:

• Ambition: Target net zero by 2030. This will require mitigating and avoiding emissions, innovating new solutions, integrating high-quality offsets and verifying performance data.
• Consistent and Transparent Disclosure: Ensure credibility by defining targets consistently. Use similar baseline years and performance metrics while disclosing a roadmap to achieving targets.
• Accountability: Incorporate milestone targets into long-term incentives. Practically design compensation programs that hold E&P teams accountable for climate-related performance over a longer time horizon.

Ben Dell, Co-Founder and Managing Partner of Kimmeridge, said: "Despite arguments that we must immediately slow or stop investing in oil and gas to accelerate the energy transition, the fact is that prematurely abandoning oil and gas will destine society to higher energy costs and tremendous volatility, disproportionately impacting the lowest income consumers. By focusing on decarbonizing production and making the sector net zero, E&Ps can remain a viable source of energy supply. With the right targets and strategies in place, the sector can contribute to the objective everyone should welcome: reliable energy at the lowest possible cost with a net zero carbon footprint." 

Mark Viviano, Head of Public Equities at Kimmeridge, said: "The world has fundamentally changed since our initial Net Zero white paper in 2020. There is increased awareness that the energy transition must balance reliability and affordability with environmental impact. U.S. oil and gas producers are uniquely positioned to play a critical role in the energy transition but doing so will require greater transparency and accountability around their decarbonization efforts. Net zero oil and gas production is the clearest signal the industry can send that it is ready to be part of the solution while enhancing its sustainability in the eyes of investors."

To view more of Kimmeridge's research and thought leadership, please visit: http://kimmeridge.com/research-archive/.

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SOURCE Kimmeridge Energy