Shale gas producers' ESG rhetoric ramps up in 2021

Across the board, pure-play shale gas producers are increasingly talking about environmental, social and governance issues in analyst and investor calls, according to an S&P Global Market Intelligence analysis of company call transcripts.

Shale gas producers are under pressure from their LNG export customers to deliver natural gas with lower greenhouse gas emissions, particularly methane. LNG exports are the leading driver of current and future demand for natural gas.

At the same time, shale gas executives are also under rising pressure to make their companies "investable," as exchange-traded and mutual funds increasingly shift their dollars to companies with net-zero emissions goals and timelines.

"The scale of ESG funds has become so massive that this category of investors is an inescapable presence for every public company, in every sector," Raymond James oil, gas and renewables analyst Pavel Molchanov said. "It is a striking but underappreciated fact that one out of three professionally managed assets in the U.S. are currently in ESG funds. This equates to a staggering $17 trillion. Even more to the point for fossil fuel companies, the largest single slice of that $17 trillion — $4 trillion — is in climate funds."

"Most climate funds are open to having some oil and gas holdings, but companies need to show that they are making efforts to reduce their carbon footprint," Molchanov said.

As demonstrated by the recent election of three activists to Exxon Mobil Corp.'s board, normally passive index fund managers such as Blackrock, Vanguard and Fidelity, often the largest shareholders in any publicly traded shale gas producer, are starting to vote green.

All nine of the major pure-play shale gas producers, most in located in Appalachia, talked about their ESG goals and programs on first quarter conference calls in 2021, according to an S&P Global Market Intelligence analysis of transcripts. This represented a marked increase from the number of times these topics came up just one year earlier Most of these companies were introducing or highlighting programs to reduce methane leaks.

On first-quarter calls in 2020, executives from only two shale gas producers, EQT Corp. and Southwestern Energy Co., discussed the ESG issues S&P Global Market Intelligence screened for.

Toby Rice, president and CEO of the U.S.' largest natural gas producer, EQT, said customer and investor response has been positive to EQT's establishment of new programs designed to have most of EQT's gas production certified with lower methane emissions.

"We've received multiple inquiries from customers and end users since making these announcements, which demonstrate that there is growing demand for certified gas, and we believe Appalachia is best-positioned to capitalize on this differentiated product," Rice told analysts on the company's May 6 earnings conference call.

Crosstown rival CNX Resources Corp. opened its first quarter conference call by giving the spotlight to CEO Olayemi Akinkugbe. An engineer who came up through the ranks at CNX and has been in his slot for nearly two years, Akinkugbe announced that CNX will replace most of the valves on its rigs and pads with a proprietary system to further cut methane emissions. "The blowdown solution under development will also allow us to recirculate methane, which will otherwise be admitted into the atmosphere, back into the gathering system," Akinkugbe said.

The sudden conversion of shale gas producers to the ESG religion echoes what analysts at energy investment bank Tudor Pickering Holt & Co. found among Permian Basin shale oil producers over the past two years. The key finding of a summer 2021 research note released May 25, was the "1.8-time increase in operators reporting ESG data since Q1 2019 in investor relations reports, as investors are increasingly focused on climate change, clean energy transition, diversity, and reducing environmental impacts from oil and gas operations."

The steepest increase in ESG discussions and announcements was among 11 small producers over two years, Tudor Pickering Holt said. "[Small-and-medium capitalization companies] were the only operators not reporting ESG data in Q1'19 but saw the largest increase in reporting with a 10x increase since Q1'19."

Using Tudor Pickering Holt's basket of 23 Permian drillers, S&P Global Market Intelligence found that the number of Permian producers discussing ESG on first quarter earnings conference calls was 95%, up from 71% in the year prior.