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New York Energy Capital Assembly 2023: Advisory Board Key Takeaways
Published 22 February 2023
In January 2023, the Energy Council put together three Advisory Boards which gathered over 50 leading industry stakeholders from across our network, including management executives from Apache, EQT, Kimmeridge Energy, CalSTRS, BlackRock, Apollo, Decarbonization Partners, Blackstone, Wellington, Morgan Stanley Energy Partners & Hess, to name just a few.
Each advisory board meeting focused on a particular theme:
- Upstream Oil & Gas and Natural Gas Investment Strategies
- Corporate Engagement & Governance Strategies for a Long-Term Transition to Net-Zero
- Funding the Low Carbon Energy Systems of the Future.
There were 4 key takeaways that came out of this year’s Advisory Board meetings as we look ahead to the New York Energy Capital Assembly 2023.
1) Will 2023 Be the Year that Equity Capital Returns?
Following years of underinvestment in the energy sector, conversations turned to where the next wave of capital is going to come from to fund new energy production at a time when the world calls for energy security. During the meeting, our advisors cited that Oil & Gas (private funds) raised $3.6bn last year, and forecast an estimated $25bn of managers going to market this year. With these numbers in mind, our advisors questioned whether or not these managers will pull through as well as where capital will actually come from, what is necessary to attract LP capital today and how many out and out new managers will be coming to market. Whitefish Energy, spun out of Titanium E&P, is a first mover in this space, but we are yet to see masses of new capital flooding to the space.
Our Advisory board members expect a number of attractive opportunities to emerge for managers in light of energy constraints, energy security concerns and price volatility resulting from the ongoing crisis in Ukraine. However, E&P management teams are going to have to evolve their business model in a way that enables them to maintain capital discipline, which will be crucial if the sector is to restore and maintain investor confidence, and ultimately attract capital back to the space. This could prove challenging as they come under pressure to build out future inventories.
2) In an Era of Declining Productivity, What Will Be the Most Impactful Driver of Value Over the Next Decade As Operators Weigh Up Remaining Inventory?
Years of underinvestment has also brought about an era of declining productivity and finite acreage, which has brought the longevity and sustainability of the E&P business model into question. Our advisors discussed how companies that are essentially shale players would look to grow moving forward, as they endeavour to maintain capital discipline. They also debated whether or not the investment community could develop renewed appetite for investment in new exploration and reward capital discipline by allowing companies to rediscover the “E” in “E&P” as they look to build out a new runway of inventory, and if so, how that might take place from a strategic perspective and within capital allocation frameworks.
If appetite for new exploration remains minimal as the industry continues to try to assert itself on generating returns of capital in excess of its cost of capital, attention will turn towards how best to exploit remaining acreage operationally to maximise NPV and what new technologies can be leveraged to breathe new life into existing plays. What is certain, is that in an age where energy security, reliability and affordability is top of the agenda, the short cycle supply of US Shale is going to play a crucial role for the foreseeable future.
3) How Will Company Disclosures Evolve to Help Investors Understand the Credibility & Resilience of their Long-Term Energy Transition Strategy?
Advisors floated the idea that net zero is a pipe dream and questioned why investors are encouraging energy companies to lie to meet goals with paper transactions or promises of future breakthroughs. It was argued that the focus should instead be centred around how ROI is being driven, the anticipated duration of that ROI, and where capital is best placed to drive performance improvements. Having so many frameworks and standards in the market makes it difficult for companies to know where to start to drive ESG performance improvements and for investors to benchmark the progress and credibility of one company vs. another, particularly for teams with limited time and resources. Therefore, bespoke industry standards with fewer, more interpretable metrics will be important to increasing transparency and an investors’ ability to interpret company disclosures.
There was a general consensus that the use of frameworks such as TCFD helps to provide key disclosure to investors on the resilience of a transition plan that responds to key risks and opportunities, and to demonstrate accountability at the Board and Management levels for the development and implementation of these efforts. One of the biggest roadblocks to progress in reporting standards and transparency around company progress is politically driven changes to government policies; and international companies face even bigger challenges when having to navigate the diverging political direction on sustainable long-term business models out of different jurisdictions across different continents.
4) What Are the Leading Frameworks to Ensure Consistent, Reliable and Transparent Calculations of Scope 1, 2 & 3 Emissions? What Are the Tools for Implementing These Frameworks and What Is Most Useful From An Investor Perspective?
Transparency is key to reducing emissions and reporting underpins progress. The energy industry and its investment community needs to work better together to understand what frameworks are reliable, which frameworks are being adopted (if at all), and whether industry trade groups are embracing these frameworks. 2050 net zero and emissions reductions goals are generally considered counterproductive as the vast majority of the management teams running the industry today will no longer be in positions of authority by 2050. Instead, companies and investors need to set quantifiable medium-term goals on GHG abatement, for example, 50% reduction by 2030 vs. 2020 as opposed to 2050. If companies want these GHG abatement & transition goals to be taken seriously by investors, a meaningful portion of management compensation must be tied to progress against these goals.
There also needs to be a greater understanding around the software solutions to data collection and GHG measurement and how to navigate the ever expanding marketplace for ESG data vendors, as well as how investors and companies alike can use these tools to stay in front of regulation and adequately prepare and safeguard ESG principles amidst increasing scrutiny and SEC ESG crackdowns.
All of these themes and more will be discussed at this year’s New York Energy Capital Assembly taking place at the New York Stock Exchange on 19-20 April 2023.
New york energy capital assembly ADVISORY BOARD MEMBERS
Senior Associate, Private Infrastructure, Partners Group
Business Development Manager, Nature Based Solutions, Shell
Vice President, Orion Infrastructure Capital
Partner, Apollo Global Management
Managing Director, Kimmeridge Energy
Associate Portfolio Manager, CalSTRS
Partner, Greenspoon Marder
Partner & Deputy CEO, Tikehau Capital
Head of Strategy, Sustainable Investing, Goldman Sachs
Managing Partner, Drillcore Energy Partners
Managing Director, Pine Brook Partners
Managing Director, Co-Head of ESG & Sustainability, Palladium Equity Partners
Director of Investor Influence, Environmental Defense Fund
Managing Director, Waterous Energy Fund
Head of Growth, New Ventures, EQT
Vice President, Environment, Health & Safety, Apache
Partner, Greenbelt Capital Partners
Head of Sustainability, North America, Schroders
Managing Director and ESG Analyst, Energy & Utilities, Wellington Management Company
Managing Director, Investment Stewardship, BlackRock
Portfolio Manager, Miller/Howard Investments, Inc.
Managing Director and Global Head, Morgan Stanley Energy Partners
Director, Oil & Gas Industry Program, Ceres
Head, NA Investment Stewardship, J.P Morgan Asset Management
Managing Director, Chief Sustainability Officer, Blackstone
Director, Corporate Strategy & Climate Change, Hess Corporation