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Oil & Gas – Exploration & Production

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Oil & Gas - Exploration & Production (E&P) entities explore for, extract or produce energy products such as crude oil and natural gas, which comprise the upstream operations of the oil and gas value chain. Entities in the industry develop conventional and unconventional oil and gas reserves; these include shale oil or gas reserves, oil sands and gas hydrates. Activities covered by this standard include the development of both on-shore and off-shore reserves. The E&P industry creates contracts with the Oil and Gas Services industry to conduct several E&P activities and to obtain equipment and oilfield services.

Relevant Issues (10 of 26)

Why are some issues greyed out? The SASB Standards vary by industry based on the different sustainability-related risks and opportunities within an industry. The issues in grey were not identified during the standard-setting process as the most likely to be useful to investors, so they are not included in the Standard. Over time, as the ISSB continues to receive market feedback, some issues may be added or removed from the Standard. Each company determines which sustainability-related risks and opportunities are relevant to its business. The Standard is designed for the typical company in an industry, but individual companies may choose to report on different sustainability-related risks and opportunities based on their unique business model.

Disclosure Topics

What is the relationship between General Issue Category and Disclosure Topics? The General Issue Category is an industry-agnostic version of the Disclosure Topics that appear in each SASB Standard. Disclosure topics represent the industry-specific impacts of General Issue Categories. The industry-specific Disclosure Topics ensure each SASB Standard is tailored to the industry, while the General Issue Categories enable comparability across industries. For example, Health & Nutrition is a disclosure topic in the Non-Alcoholic Beverages industry, representing an industry-specific measure of the general issue of Customer Welfare. The issue of Customer Welfare, however, manifests as the Counterfeit Drugs disclosure topic in the Biotechnology & Pharmaceuticals industry.
General Issue Category
(Industry agnostic)

Disclosure Topics (Industry specific) for: Oil & Gas – Exploration & Production

GHG Emissions
  • Greenhouse Gas Emissions

    Exploration & Production (E&P) activities generate significant direct greenhouse gas (GHG) emissions from a variety of sources. Emissions may be combusted, including those arising from flaring or power generation equipment, or uncombusted, including those emissions arising from gas processing equipment, venting, flaring and fugitive methane. Regulatory efforts to reduce GHG emissions in response to climate change related risks may result in additional regulatory compliance costs and risks for E&P entities. With natural gas production from shale resources expanding, the management of the emission of methane, a highly potent GHG, from oil and gas E&P systems has emerged as a major operational, reputational and regulatory risk for entities. Furthermore, the development of unconventional hydrocarbon resources may be more or less GHG-intensive than conventional oil and gas, with associated effects on regulatory risk. Energy efficiency, use of less carbon-intensive fuels, or process improvements to reduce fugitive emissions, venting and flaring, can provide direct benefits to E&P entities in the form of reduced costs or increased revenue.
Air Quality
  • Air Quality

    Air emissions from E&P operations other than greenhouse gas emissions include hazardous air pollutants, criteria air pollutants, and volatile organic compounds (VOCs), which can have significant, localised human health and environmental impacts. Of particular concern are sulphur dioxide, nitrogen dioxide, and VOC emissions. The financial impacts on entities from air emissions will vary depending on the specific locations of operations and the prevailing air emissions regulations. As E&P operations expand close to population centres, the impacts on human health are likely to be exacerbated if air emissions limits are breached. Active management of the issue—through technological and process improvements—could allow entities to limit the impact of regulations in an environment of increasing regulatory and public concerns about air quality. Entities could benefit from operational efficiencies that may lead to a lower cost structure over time.
Water & Wastewater Management
  • Water Management

    Depending on the extraction technique, exploration and production operations may consume significant quantities of water, which may expose entities to the risk of reduced water availability, regulations limiting use, or related cost increases, particularly in water-stressed regions. Contamination of local water resources can result from incidents involving produced water, flowback water, hydraulic fracturing fluids and other well fluids. Historically, the possible impacts of hydraulic fracturing operations and the risk of groundwater supply contamination have raised concerns. Reducing water use and contamination through recycling, other water management strategies, and use of non-toxic fracturing fluids could create operational efficiency for entities and reduce their operating costs. Such strategies could also minimise the effects that regulations, water supply shortages and community-related disruptions have on operations.
Ecological Impacts
  • Biodiversity Impacts

    The exploration and production (E&P) industry’s activities can have significant impacts on biodiversity. Examples include habitat loss and alteration through land use for exploration, production, disposing of drilling and associated wastes, and decommissioning of onshore and offshore wells. Oil spills and leaks are a threat to species and habitats impacted by hydrocarbon contamination. Biodiversity impacts of E&P operations can affect the valuation of oil and gas reserves and create operational risks. The environmental characteristics of the land where reserves are located could increase extraction costs as a result of increasing awareness and protection of ecosystems, making such reserves uneconomical to extract. Entities could also face regulatory or reputational barriers to accessing reserves in ecologically sensitive areas. This may include new protection statuses afforded to areas where reserves are located. Areas such as the Arctic and certain shorelines with mangroves and swamps are not only extremely ecologically sensitive, but also entail more complex and expensive cleanup operations if hydrocarbon spills or leaks occur there. Negative future impacts on the value of reserves could be mitigated by taking into consideration the location of reserves in or near protected areas when making investment or capital expenditure decisions. Entities with a good track record of minimising biodiversity impacts could gain a competitive advantage in accessing new reserves in or near protected areas. Ongoing E&P operations could be at risk in the absence of effective environmental management plans for different stages of the project lifecycle, due to regulatory penalties, litigation, community protests, and associated costs.
Human Rights & Community Relations
  • Security, Human Rights & Rights of Indigenous Peoples

    Exploration and production (E&P) entities face additional community-related risks when operating in conflict zones; in areas with weak or absent governance institutions, rule of law, and legislation to protect human rights; or in areas with vulnerable communities such as indigenous peoples. Entities using private or government security forces to protect their workers and assets may knowingly or unknowingly contribute to human rights violations, including use of excessive force. Indigenous people are often the most vulnerable sections of the population, with limited capacity to defend their unique rights and interests. Entities perceived as contributing to human rights violations or failing to account for indigenous peoples’ rights may be affected due to protests, riots, or suspension of permits. They could face substantial costs related to compensation or settlement payments and write-downs in the value of their reserves in such areas. In the absence of country laws to address such cases, several international instruments have emerged to provide guidelines for entities, including obtaining the free, prior, and informed consent of indigenous peoples for decisions that affect them. With greater awareness, several countries are also beginning to implement specific laws protecting indigenous peoples’ rights, creating increasing regulatory risk for entities.
  • Community Relations

    Exploration and production (E&P) activities take place over a number of years, and entities may be involved in multiple projects in a region that can have a wide range of community impacts. Community rights and interests may be affected by environmental and social impacts of E&P operations, such as competition for access to local energy or water resources, air and water emissions, and waste from operations. E&P entities frequently need support from local communities to be able to obtain permits and leases and conduct their activities without disruptions. Entities may experience adverse financial impacts if the community interferes, or lobbies its government to interfere, with the rights of an E&P entity in relation to their ability to access, develop, and produce reserves. In addition to community concerns about the direct impacts of projects, the presence of E&P activities may result in associated socioeconomic impacts related to education, health, livelihoods, and food security for the community. E&P entities that are perceived as engaging in rent-seeking and exploiting a country or community’s resources without providing any socioeconomic benefits in return may be exposed to the risk of resource nationalism actions by host governments and communities. These could include imposition of ad hoc taxes and export restrictions. These risks may vary depending on the country, and could be higher in countries heavily reliant on oil and gas for their economic growth. Entities in the extractives industries can adopt various community engagement strategies in their global operations to manage risks and opportunities associated with community rights and interests, such as integrating community engagement into each phase of the project cycle. Entities are beginning to adopt a “shared value” approach to provide a key socioeconomic benefit to the community while allowing the entity to profitably operate.
Employee Health & Safety
  • Workforce Health & Safety

    Workers involved in exploration and production (E&P) activities face significant health and safety risks due to the harsh working environments and the hazards of handling oil and gas. In addition to acute impacts resulting from accidents, workers may develop chronic health conditions, including those caused by silica or dust inhalation, as well as mental health problems. A significant proportion of the workforce at oil and gas drilling sites consists of temporary workers and employees of Oil and Gas Services entities. Therefore, health impacts on, and the safety performance of, such workers also have impacts on E&P entities. Additional health and safety protocols may be needed to protect women and minorities, particularly when they operate in regions where they continue to face discrimination.
Business Model Resilience
  • Reserves Valuation & Capital Expenditures

    Exploration and production (E&P) entities may be unable to extract a significant proportion of their proved and probable oil and gas reserves if greenhouse gas (GHG) emissions are controlled to limit global temperature increases. Entities with more carbon-intensive reserves and production and higher capital costs may face greater risks. Regulatory limits on GHG emissions, together with improved competitiveness of alternative energy technologies, could reduce global demand growth, and therefore reduce prices for oil and gas products. Extraction costs could increase with regulations that put a price on GHG emissions. These factors could affect the economic viability of oil and gas reserves. Regulatory actions that are more abrupt than anticipated, or those focusing on industries with high emissions, could impair asset values over a short period. Stewardship of capital resources and production decisions that consider near- and long-term trends related to climate change may mitigate potential asset impairment and maintain profitability and creditworthiness.
Business Ethics
  • Business Ethics & Transparency

    Managing business ethics and maintaining an appropriate level of transparency in payments to governments or individuals are significant issues for the exploration and production (E&P) entities. This is due to the importance of government relations to entities’ ability to conduct business in this industry and to gain access to oil and gas reserves. The emergence of several anti-corruption, anti-bribery, and payments-transparency laws and initiatives globally create regulatory mechanisms to reduce certain risks. Violations of these could lead to significant one-time costs or higher ongoing compliance costs, whereas successful compliance with such regulations could provide risk mitigation opportunities and avoid adverse outcomes. Enforcement of these laws could lead to significant one-time costs or higher ongoing compliance costs and even affect an entity’s social license to operate. Entities with significant reserves or operations in corruption-prone countries could face heightened risks. Entities are under pressure to ensure that their governance structures and business practices can address corruption and willful or unintentional participation in illegal or unethical payments or gifts to government officials or private persons.
Management of the Legal & Regulatory Environment
  • Management of the Legal & Regulatory Environment

    The Oil & Gas – Exploration & Production industry is subject to numerous sustainability-related regulations and an often rapidly changing regulatory environment. Changes to the legal and regulatory environment may result in material impacts on shareholder value. Entities in the industry regularly participate in the regulatory and legislative process on a wide variety of environmental and societal issues, and may do so directly or through representation by an industry association. Such engagement can result from entities seeking to ensure industry views are represented in the development of regulations impacting the industry as well as to represent shareholder interests. At the same time, such engagement to influence environmental laws and regulations may adversely affect entities’ reputations with stakeholders and ultimately impact the entity’s social license to operate. Entities that are able to balance these viewpoints may be better positioned to respond to medium- to long-term regulatory developments.
Critical Incident Risk Management
  • Critical Incident Risk Management

    The exploration and production (E&P) industry faces significant hazards associated with exploration, development, and production activities. Releases of hydrocarbons or other hazardous substances as a result of accidents can also have significant consequences for an entity’s workforce, as well as external social and environmental consequences. In addition to effective process safety management practices, entities frequently prioritise developing a culture of safety to reduce the probability that accidents and other health and safety incidents will occur. If accidents and other emergencies do occur, entities with a strong safety culture are often able to more effectively detect and respond to such incidents. A culture that engages and empowers employees and contractors to work with management to safeguard their own health, safety, and well-being and prevent accidents is likely to help entities reduce production downtime, mitigate costs, ensure workforce productivity, and maintain their license to operate.

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