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 the initiative for increased governance and transparency in general, and specifically in relation to climate change. The Board recognises the increasing societal and investor focus on climate change, and the desire to understand its potential impacts on the oil and gas industry through improved disclosure, utilising mechanisms such as those proposed by the Task Force on Climate-related Financial Disclosures (‘TCFD’). The table below provides information relevant to each of the four TCFD recommendations, and the Group will continue to evolve these disclosures over time in preparation of the mandatory reporting in 2021.

 

 

TCFD framework

EnQuest disclosures

2020 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 by being the operator of choice for maturing and underdeveloped hydrocarbon assets. 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 across Upstream, Midstream and Decommissioning operations where practicable and ensuring a robust risk management framework (‘RMF’) is in place. As set out in the risk management section below, climate-related issues feature within a number of the Group’s principal risks and are prioritised and managed accordingly. In addition, climate change is recognised as a standalone risk area in its own right (see page 46 of the 2020 Annual Report).

Reflecting the importance the Group places on evolving climate change-related matters, the RMF process is overseen by a dedicated sub-Committee of the Board. This sub-Committee is now the Safety, Climate and Risk Committee and its terms of reference have been amended to 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 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 Oil & Gas UK.

During 2020, the ESG steering group, comprising members of the Executive Committee and other appropriate managers, reviewed the Group’s emissions performance, identified a number of initial emission reduction initiatives and proposed a discrete Group-wide target (see the Metrics and Targets section below). In support of this, a working group has been set up dedicated to the identification and implementation of economically viable emissions savings opportunities across the Group’s portfolio of assets. This group will report to the Executive Committee and the Safety, Climate and Risk Committee on a regular basis

Pages 46 to 59, 68 to 101, 105 to 106 and 109 to 113

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. 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 Group is also engaged in various forums, such as Project Orion in the Shetland Islands, to ensure it remains aware of any emerging prospects that could provide cleaner energy to its asset base and so lower the Group’s overall emissions.

Long-term energy demand scenarios (such as the International Energy Agency’s Sustainable Development Scenario and the Shell Sky Scenario, both of which are aggressive decarbonisation forecasts) forecast hydrocarbons to remain an important part of the energy mix for a considerable period. Notwithstanding this, 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’ within EnQuest’s portfolio. In addition, during 2020 EnQuest transformed its business, focusing on its lowest cost assets which saw unit operating expenditures reduce to c.$15.2/Boe, further enhancing its ability to successfully operate in a low oil price environment.

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.

Other financial risks of climate change considered include access to, and cost of, capital, insurance and decommissioning surety bonds as investors’ and insurers’ appetite for exposure to the oil and gas sector reduces. In addition, the cost of emissions trading allowances may trend higher.

With respect to physical risks of climate change to the Group’s business, the Group is aware of potential 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.

Pages 01 to 23, 30 to 37 and 52

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 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.

The Safety, Climate and Risk Committee provides a forum for the Board to review selected individual risk areas in greater depth. Indeed, climate change is now 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 46 to 59 and 105 to 106

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

EnQuest has reported on all of the emission sources within its operational control, as required under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 and The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.

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. However, the Board has 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.

 

Pages 04, 10 to 15, 32 to 37, 82 to 101, 105 to 106 and 112 to 113