Climate Change Statement and Strategy
Anadarko recognizes some of its stakeholders are increasingly interested in the potential impacts of climate change on our operations and how related changes in future regulations, policy, initiatives and global energy demand could impact the landscape in which we operate. While we share the view of many industry analysts that oil and natural gas will remain a significant portion of energy supply for the foreseeable future, we recognize that climate change is an important concern, and we actively monitor climate change-related issues to ensure that we are assessing and managing potential risks. Our current strategy is to proactively work to limit emissions of methane and other greenhouse gases from our operations and reduce the environmental footprint of our activity. We believe this strategy is in the best interests of both the environment and the Company.
Anadarko supports scientific research that improves the understanding of climate patterns and their potential sensitivity to human activities. We are committed to responsible environmental stewardship and to minimizing our environmental impact. For more detail on our emission reduction efforts, please visit: Greenhouse-Gas and Air-Quality Management. We are committed to working with governmental agencies and other stakeholders in developing sound public policy that promotes appropriate and effective regulations, recognizing that oil and natural gas are essential to modern life and critical to the success of the global economy.
Governance and Monitoring New Legislation
Anadarko’s management employs a rigorous process to evaluate enterprise risk, including review and oversight by the Board of Directors on a quarterly basis. The enterprise risk process identifies, assesses, reports and monitors enterprise risks to the Company, including climate change. As part of this process, external regulations, policy and initiatives, including the Paris Accord are monitored and reported on regularly. Their potential impact is considered in long-term strategic planning and decision making. To provide additional transparency, the company posted its 2018 Climate Risk Assessment and Management Report in November 2018.
Anadarko is open to continuing dialogue on future climate-related initiatives and regulations and supports the collection of emissions data for use in further research. Anadarko promotes policies that align with the Company’s position on climate change through membership in several national and international organizations representing oil and natural gas companies. Since 2005, Anadarko has voluntarily reported annual GHG emissions data and additional comprehensive information regarding our carbon-management strategies and actions to the Carbon Disclosure Project (CDP). Anadarko has also previously participated in EPA’s Natural Gas STAR program, The Climate Registry and the American Carbon Registry. Participation in these programs goes beyond emission reporting required under federal and state regulations. Anadarko also participates in the Environmental Partnership, an effort sponsored by the American Petroleum Institute to implement programs designed to further reduce emissions of methane and volatile organic compounds using proven, cost-effective technologies.
Restricted Carbon Scenario Analysis and Stranded Asset Risk
As to climate change risks, a range of oil and natural gas demand and pricing forecasts, including carbon-constrained scenarios, are considered as part of the Company’s strategic planning process with the Board of Directors. The Company also utilizes third-party analyst firms to provide commodity market analysis as well as industry and economic projections. This data is utilized to formulate management’s assumptions of the future operational and regulatory environment as well as the optimal investment profile considering both environment and business performance expectations. In addition, related factors are considered including anticipated GHG emissions and assessments of emission-reduction options in the evaluation of new project investment decisions. One example is moving to a tankless gathering system in the Delaware Basin, a multi-billion dollar infrastructure project currently being installed, which eliminates flaring natural gas at the wellhead and significantly reduces truck traffic thereby reducing emissions. The Delaware Basin infrastructure concept is similar to systems that Anadarko has successfully implemented in the Company’s DJ Basin operations. These projects involve significant advance planning and investment but ultimately yield greater efficiency, lower costs and an improved environmental footprint.
One of our best defenses to the uncertainty of climate change is that Anadarko’s future investment opportunities have strong underlying economics that deliver a low relative cost of supply, minimizing the risk of stranded assets even in a carbon-constrained future. Anadarko’s three focus areas are the Delaware Basin, the DJ Basin and subsea tiebacks to existing infrastructure in the Deepwater Gulf of Mexico. Both the Delaware Basin and DJ Basin are recognized by third-party research analysts for having some of the lowest break-even oil prices in North America.
In addition to operating high-quality assets in the most competitive North American basins, Anadarko strives to be a low-cost operator within those basins. We routinely benchmark our operating cost position against key competitors to ensure our ability to safely deliver the lowest possible cost of supply, further minimizing the risk of stranded assets.
Not only are we a low-cost producer in some of the most economical basins in North America, the majority of Anadarko’s current portfolio is comprised of short-cycle opportunities — meaning the time between investment and first production is less than approximately one year. This provides considerable flexibility to react to changes in market conditions. We have the ability to allocate capital investment as needed in response to potential changes in regulations, energy demand or other factors, which further mitigates our financial risks. As demonstrated over the past several years, we continuously manage our asset mix to limit our exposure to various risks, including those related to the price of, and demand for, the commodities we sell. The only long-cycle investment opportunity currently being considered for development is the Mozambique LNG project. This project will be underpinned by contractual offtake agreements minimizing stranded asset risk. Furthermore, almost all of Anadarko’s proved reserves, which form the basis of how investors value our Company, are based on reserves we will monetize in the near-to-medium term.
Because of our ongoing, proactive strategic planning process and demonstrated ability to successfully respond to current and future market conditions through portfolio management, together with the strong underlying economics of our current key assets, we believe Anadarko is positioned well to mitigate any stranded asset risk. We believe that Anadarko’s current risk management and strategic planning processes are sufficient to mitigate foreseeable risks associated with climate change.