Task force on climate-related financial disclosures ('TCFD')

The Group welcomes the initiative for increased governance and transparency in general, and specifically in relation to climate change.

The Group welcomes initiatives for increased governance and transparency in general, and specifically in relation to climate change. The Board recognises the societal and investor focus on climate change, and the desire to understand potential impacts on the oil and gas industry through improved disclosure, such as those proposed by the Task Force on Climate-related Financial Disclosures (‘TCFD’). EnQuest PLC has complied with the requirements of LR 9.8.6R by including climate-related financial disclosures consistent with the TCFD recommendations except for in relation to the disclosure of Scope 3 emissions within the metrics and targets section. Scope 3 emissions are not yet measured given the uncertainty and impracticality in accurately measuring such emissions throughout the value chain. The Group will continue to assess how it may measure Scope 3 emissions for the next phase of TCFD implementation, but, until such time, will remain non-compliant in this respect.

 

 

TCFD framework

EnQuest disclosures

2021 Annual Report page reference

Governance:

  

Describe the Board’s oversight of climate-related risks and opportunities

Describe management’s role in assessing and managing climate-related risks and opportunities

EnQuest’s purpose is to provide creative solutions through the energy transition. The Board is focused on a strategy which recognises that hydrocarbons will remain a key element of the global energy mix for many years and through which the Group can pursue a business model which helps to fulfil energy demand as part of the transition to a sustainable lower-carbon world while reducing carbon emissions from its own business where practicable and ensuring a robust risk management framework (‘RMF’) is in place. As set out in the risk management section below, climate change is recognised as a standalone risk area in its own right and climate-related issues feature within a number of the Group’s principal risks and are prioritised and managed accordingly. 

Reflecting the importance the Group places on evolving climate change-related matters, the RMF process is overseen by the Safety, Climate and Risk Committee, a dedicated sub-Committee of the Board whose terms of reference enable it to support the Board with increased oversight of de-carbonisation, including monitoring progress towards the Group’s three-year emission reduction target and climate change-related risk matters.

The Board and management keep appraised of the evolving risk and opportunity landscape and its potential impacts on the Company’s business. In doing so, they consult as appropriate with the Group’s advisers and appropriate third-party institutions, including fund managers, investors and industry associations such as Offshore Energies UK.

During 2021, a discrete Group-wide emissions reduction target was approved (see the Metrics and targets section below). In support of this, the Group has an energy management system governance document setting out how it approaches the measurement and reporting of emissions. It also sets out how the Group will assess and select emission reduction opportunities, with a working group dedicated to the identification and implementation of economically viable emissions saving opportunities across the Group's portfolio of assets. This group reports to the Executive Committee and the Safety, Climate and Risk Committee on a regular basis

Pages 42 to 53, 69 to 93, and 97 to 98

Strategy:

  

Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term

Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning

Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario

EnQuest’s business model is distinct from companies that have a material exploration component to their business and it is, therefore, less exposed to the much longer duration of exploration, discovery, development and production. EnQuest primarily acquires mature and underdeveloped assets from other industry participants and drives performance improvements, including emission reductions, through short-cycle, quick payback investments. EnQuest’s UK Decommissioning directorate is responsible for the safe and efficient execution of the decommissioning work programmes and is committed to delivering them in a responsible manner, which also includes minimising emissions alongside maximising the recycle and reuse of recovered materials. EnQuest considers within one year to be short term, one to three years to be medium term (both of which are in line with the Group's assessment of going concern and viability, respectively) and the longer term to be beyond three years.

The Group continues to assess a number of climate-related risks and opportunities. As majors and other operators continue to shift their focus from mature basins such as the North Sea and Malaysia, there will be further opportunities for the Company to access additional resources. The timing of such events is uncertain. In 2021, the Group established an Infrastructure and New Energy business with responsibility for delivering the Group's short and medium-term emission reduction objectives and advancing longer-term renewable energy and decarbonisation opportunities. Other financial risks of climate change considered include access to, and cost of, capital, insurance and decommissioning surety bonds as investors' abd insurers' appetite for exposure to the oil and gas sector reduces across all timeframes. In addition, the cost of emissions trading allowances may trend higher over time. With respect to physical risks of climate change to EnQuest's business, the Group is aware of potential longer-term risks associated with rising sea levels, tidal impacts and extreme weather events which could cause damage and destruction to its ageing offshore assets, particularly as these events become more regular and extreme in nature, but considers these risks to be low given the Group's focus on asset integrity and the expected remaining life of these mature assets.

The Group considers as part of its strategic, business planning and risk processes, how a number of macroeconomic themes may influence its principal risks.

The most material risk factor to EnQuest’s business model is the oil price, and climate change is one of many potential influencing factors on the oil price. EnQuest’s planning and investment decision processes cater for low oil price scenarios, and include a carbon cost associated with forecast emissions. Where new assets are acquired, there will be a clear emissions reduction plan for any such asset for which EnQuest assumes operatorship, relative to the carbon footprint in the hands of the seller, and the Group factors in an associated carbon price into the acquisition economics, even in markets where no carbon trading or pricing mechanism exists. In the short to medium term, EnQuest reviews the impact of different oil prices in its going concern and viability statements. EnQuest is also monitoring progress against the UK NSTD goals which contribute to the UK Government's target of net zero by 2050.

The Group has measured the resilience of its existing portfolio and future development plans using oil price and cost of emissions assumptions based on the International Energy Agency's Sustainable Development ('SDS'), and Net Zero Emissions ('NZE') Scenarios. The Group continues to generate positive free cash flow when using assumptions based on the SDS, although cash flow becomes negative when using assumptions based on the NZE. However, should oil price and emission costs prevail similar to those assumed under the NZE, EnQuest's business model will enable it to adapt to a rapidly changing external environment as its short-cycle investments reduce the risk of 'stranded assets'.

Pages 02 to 23, 34 to 35 and 42 to 53

Risk Management:

  

Describe the organisation’s processes for identifying and assessing climate-related risks

Describe the organisation’s processes for managing climate-related risks

Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management

The Group has robust risk management and business planning processes that are overseen by the Board, the Safety, Climate and Risk Committee and the Executive Committee in order to identify, assess and manage climate-related risks. The risk landscape inputs and considerations are outlined on page 45 of the ARA and cover long-term macro factors and near-term and emerging risks. The Group’s RMF is embedded in all levels of the organisation with asset, regional and functional risk registers aggregating to an enterprise risk register identifying relevant threats and how they are mitigated, whilst the adequacy and efficacy of controls in place are themselves also monitored. This integration enables the Group to quickly identify, escalate and appropriately manage emerging risks, with a quarterly RMF report reviewed by leadership teams and presented to the Safety, Climate and Risk Committee.

The Safety, Climate and Risk Committee also provides a forum for the Board to review selected individual risk areas in greater depth. Climate change is categorised as a standalone risk area within the Group’s ‘Risk Library’ allowing the application of EnQuest’s RMF to underpin its approach in this important area. For each risk area, the Safety, Climate and Risk Committee reviews ‘Risk Bowties’ that identify risk causes and impacts and maps these to preventative and containment controls used to manage the risks to acceptable levels. Climate change-related issues are also considered within the context and review of a number of other risk areas.

Pages 42 to 53 and 97 to 98

Metrics and targets:

  

Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process

Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (‘GHG’) emissions, and the related risks

Describe the targets used by the organisation to manage climate-related risks and opportunities, and performance against targets

At EnQuest, the financial or strategic impact of a risk is assessed and measured based on the potential net present value ('NPV') negative impact of the particular risk. Specifically, a substantive financial or strategic impact would be defined as a risk with potential impact of greater than £50 million NPV, on a post mitigation basis. EnQuest has also defined criteria for screening and ranking emissions reduction opportunities, including: the potential contribution to the Group's targets; economic indicators; the chance of success; time to implement; and any risks to the Group's production.

EnQuest has reported on all of the emission sources within its operational control, as required under the Companies Act 2006 (Strategic Report abd Directors' Report) Regulations 2013 and The Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. This information can be found in the Directors report. In the UK, EnQuest publishes its annual Environmental Statement in line with the regulatory requirement under the OSPAR recommendation 2003/5. These statements, which can be found in the Environmental, Social and Governance section on the Group's website, www.enquest.com, are an open and transparent representation of the environmental performance across EnQuest's UK operations.

The Group recognises that the ability to reduce carbon emissions is constrained by the original design of its later-life assets where the main sources of atmospheric emissions come from combustion associated with power generation and flaring. The Board's goal is to be as ambitious as it can in setting decarbonisation targets, whilst balancing the economic realities of operating late-life assets. As such, in 2021 the Board approved a targeted 10% reduction in EnQuest’s absolute Scope 1 and 2 emissions from its existing portfolio over three years, from a year-end 2020 baseline, with the achievement of this target linked to reward. In addition, the Group is committed to playing its part in delivering on the UK Government's North Sea Transition Deal emission reduction targets.

 

Pages 03, 05, 07, 10, 12, 14, 23, 33 to 35, and 103 to 104