The Challenge of Optimizing Production, Delivering ESG Objectives

The oil and gas industry faces increasing scrutiny in its environmental, social and governance (ESG) practices. ESG standards have evolved into a critical factor for companies in determining their access to financing. Balancing the imperative to optimize production in mature fields with the responsibility to uphold ESG principles is a critical challenge for all operators, agree experts.

Addressing these complex issues requires a multifaceted ecosystem involving customers, corporations and regulatory bodies, says Ignacio Quesada, Partner, McKinsey & Company. Solutions must be approached from diverse perspectives and encompass a range of elements.

In this regard, Brad McNeill, CEO, Frontera Offshore, emphasizes that the primary focus should be on transparency, as capital markets exert influence on both the accessibility and cost of capital allocated to support oil and gas initiatives. It has become crucial for companies seeking capital or operating within the market to express their dedication to ESG, exhibit transparency in their commitments and demonstrate tangible evidence in the application of these practices. He also underlines the importance of systematically assessing strategies for reducing carbon emissions and integrating cutting-edge technologies to enhance operational efficiency, especially in ongoing projects or mature fields. 

Ensuring success in the implementation of ESG methodologies requires a close examination of available tools and facilities. Recognizing sustainability concerns in an existing operational framework also differs significantly from incorporating such measures into entirely new projects, especially when existing assets are already deployed.

The oil and gas sector faces several challenges due to its nature and impact on the environment and local communities. The negative environmental impacts frequently associated with fossil fuel activities have led to global concern, especially over the climate change crisis. Consequently, several countries are considering or have already implemented measures to transition away from fossil fuels. They are even contemplating or have announced plans to ban the hydrocarbon industry from their territories.

Sara Landon, Executive Director, Inerco, mentions that the objectives for the year 2050 are clearly defined and, based on these, there will be a decrease in oil consumption. Technology will gradually integrate into the industry and only the most efficient and profitable reservoirs will endure, considering not only economic but also environmental and social factors. However, to achieve this transition successfully, it is imperative to establish public policies and collaborate with governmental bodies and educational institutions, while promoting social and economic development.

Preparing for the future through a well-defined strategy, collaborative efforts and a diversified portfolio of business ventures becomes essential. This preparation involves adopting the best available technologies and evaluating the feasibility of ongoing projects, particularly regarding energy efficiency, monetization, storage, effluent and emission management.

Eckhard Hinrichsen, Country Manager and Market Area Manager, DNV Energy Systems Mexico, states that the focus should not primarily be on cost considerations when deciding how to implement such measures, as ESG initiatives are no longer discretionary. Instead, it is crucial to proactively seek opportunities within social assets and invest in community-centric endeavors. These opportunities should be viewed as yielding more advantages than mere financial costs.

The journey to minimize carbon emissions continues and requires the oil industry to innovate based on how oil-based products are used in various industries. Investors are now heavily focused on aligning their portfolios with renewable or green-focused investments. ESG has emerged as a central theme in investment decisions. The oil industry, often seen as a climate adversary, can play a pivotal role in the decarbonization transition, especially with government incentives. James Buis, District Manager - Mexico, ChampionX, emphasized that diversifying portfolios is also imperative to address emerging challenges effectively.

Landon notes that approximately 50% of greenhouse gas emissions originate from the oil and gas industry. However, comprehensive guidelines have been issued to provide a clear roadmap for addressing this challenge. Most companies within the petroleum sector are affiliated with the Global Reporting Initiative (GRI). As of January 2023, oil and gas enterprises must adhere to Sectoral Standard Number 11. This standard is closely aligned with the fulfillment of SDGs and underscores the necessity for industrial activities to be sustainable, not only from an economic standpoint but also environmental and social perspectives. Within these standards, best practices are articulated, serving as a framework for sector companies to establish their commitments in the years ahead.

Landon underscores that tools have been developed for mitigating significant effects within the oil sector. These tools involve a structured four-step process: proactively preventing the occurrence of adverse impacts, minimizing their magnitude, remedying and restoring biodiversity and compensating for any remaining significant impacts.

ESG in Mature Operations

Oil and gas operators in mature fields face a dual challenge: optimizing production while upholding ESG responsibilities. By considering environmental impacts and implementing mitigation measures, integrating ESG principles into field rejuvenation projects, embracing technology for efficiency and sustainability and employing advanced reservoir management techniques with an ESG perspective, operators can navigate this challenge successfully.

The innovative integration of technologies, such as combining Offshore Wind with Enhanced Oil Recovery (EOR), represents a forward-thinking approach, according to Hinrichsen. This involves electrifying offshore operation platforms to minimize carbon footprint and gradually transitioning toward renewable energy sources. Additionally, using solar energy is a strategic measure aimed at reducing carbon emissions within the industry. Furthermore, incorporating biodegradable agents in fracking underscores a commitment to environmental sustainability. 

McNeill stated that significant technological opportunities persist in Mexico, particularly in bridging existing gaps. There is a growing awareness among individuals regarding available technologies, although challenges persist in their adoption. Nevertheless, it is undeniable that continued progress is essential, encompassing the incorporation of AI, data analytics and augmented reality for training and various applications.

Moving forward, a strategic approach for mature fields should involve a comprehensive assessment of the current landscape. This assessment should aim to determine feasible and cost-effective actions and identify technologies that can be deployed to execute these plans effectively.