What we are looking for
A (relatively) clean oil and gas – with an emphasis on gas – producer that could be a valuable part of the energy transition.
Exploring for, and producing, natural gas is a polarizing activity. Some see it as locking economies into continued dependence on fossil fuels, while others see gas as a “transition fuel” that would help ease the shift to a greener economy – especially if international calls to reduce methane leaks are effective. And while fossil fuels are often painted with the same brush, gas is much less carbon-intensive than coal, which it can replace as a feedstock for power generation in the interim. Gas is also less carbon-intensive than oil, and will likely be in demand for longer, as power plants and transmission infrastructure are longer-living assets than internal combustion engine cars and trucks, which can be replaced by electric ones. With this in mind, we will look at North America’s largest oil and gas players to see whose production could continue to be in demand through the energy transition.
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The Screen
We start with a list of companies in the oil and gas exploration and production industry with a market cap greater than US$5-billion, and look at their production of oil, natural gas and liquefied natural gas (LNG), measured in boe – barrels of oil equivalent, the equivalent amount of energy contained in one barrel of crude oil. With this we can see whose production is tilted more to gas, rather than oil.
- Next, we look at the companies’ scope 1 & 2 carbon emissions (these cover the emissions from company operations as well as those associated with any energy they purchase), and scale these to boe to see which are most efficient at producing units of energy, be it oil, gas or LNG, in terms of their carbon foot.
- The companies that are producing fuels with less carbon embedded in them (ie. gas and LNG), in a way that in itself is less carbon-intensive, should continue to be relevant in an energy transition that continues to rely on gas as a transition fuel for at least a period of time.
What we found
Range Resources RRC-N – a company whose operations are predominantly in Pennsylvania – in particular stands out, with a production mix that is 98 per cent gas and by far the lowest carbon-intensity at less than one tonne/boe. In its latest sustainability report, released earlier this month, the company highlighted that it managed to reduce methane emissions (a particularly damaging form of carbon emissions) intensity by two-thirds, through adoption of new technologies and increasing frequency of detection and repair surveys. The company has also committed to be net zero (scope 1 &2) by 2025 and is ahead of schedule in terms of its emissions-reduction goals.
For those looking for a Canadian option, Tourmaline TOU-T looks interesting. Misleadingly named, Tourmaline Oil actually produces 91 per cent gas and its goal is to have the largest supply of low-emission natural gas in North America. At the start of 2023, the company became the first Canadian producer to supply natural gas to Asian and European markets – a trade that will continue to feel tailwinds as long as gas from Russia is shunned and supplies from the Middle East are disrupted.
Hugh Smith, CFA, MBA, is Director, Analytics at London Stock Exchange Group.
Hugh Smith, CFA, MBA