The Impair State: The Paris Agreement starts to impact oil & gas accounting
Carbon Tracker has today published a new analyst note – The Impair State, looking at the impairment prices used by oil and gas companies in the context of the climate goals.
In its 2019 annual report, BP’s auditors had observed that its long term price assumptions were not consistent with the Paris Agreement goals. BP has today become the fourth European producer to make an adjustment to its long term price assumptions on the basis of the energy transition, announcing write downs of $13-17.5bn in the process.
High price assumptions may mask the financial risk to marginal projects and indicate a lack of conservativeness or even overinflated financial statements. We hope to see more widespread and deeper, more consistent integration of the energy transition throughout company business practices in the coming years.
KEY FINDINGS:
- Total, Repsol, Shell and BP have made significant downwards revisions in their impairment price assumptions in the last year, driven at least in part by the energy transition. These companies now have outlooks that are more conservative than their European peers.
- We still believe that the prices used at these firms are higher than a level that would truly give conviction of alignment with the Paris goals.
- BP’s auditors, Deloitte, explicitly noted in 2019 that its previous impairment prices were not consistent with the Paris goals, despite BP believing its strategy to be “consistent with the goals of the Paris Agreement”. BP has now amended its assumptions.
- Equinor’s long-term oil price assumption of $80/bbl in real terms is the highest of the companies reviewed here. Eni maintains an unchanged long term price assumption of $70/bbl. Assumptions at both of these companies must be under pressure.
- European companies are far ahead of US peers – none of ExxonMobil, Chevron or ConocoPhillips disclose impairment price assumptions at all, never mind attempting to align with international climate commitments.
- We believe the principle that the energy transition is being incorporated in financial statements and audit processes is a positive development.