Oil and gas companies in the UK may be underestimating the financial risks associated with the transition to net zero, according to a new study.
Academics from the UK and France led the research, which was based on analysis of company reports and 22 interviews with industry representatives on how transition risks were being managed.
The paper, "Transitioning to Net Zero: Assessing the Impacts on Asset Impairment, Write-downs and the Going Concern of Oil and Gas Companies Operating in the UK," was published in the Global Environmental Change journal, and it was co-written by individuals from Nottingham University and UCL in London and ICN Business School in Nancy, France.
They concluded that the shift to net zero shift would likely reduce oil companies’ access to capital, raising their borrowing costs and could lead to some offshore assets remaining stranded.
Dr. Freeman Owusu of Loughborough University Business School said, "Our findings show that the transition to net zero presents significant risks for oil and gas companies in the UK. These include rising operational costs, reduced access to finance and increased financial pressure.
“Together, these risks threaten the going concern of some oil and gas companies, lower market value, and have knock-on effects on the wider energy supply chain and government revenues.”
Smaller firms that have relatively high emissions and fewer alternative business options were viewed as particularly vulnerable.
The researchers added that there was a need for clearer, more tailored company disclosures.
“What is particularly concerning,” Owosu said, “is the lack of transparency. Our research highlights a disconnect between the magnitude of these risks and the level of disclosure currently provided by oil and gas companies.
“We argue that more detailed and forward-looking disclosures are urgently needed not only to meet stakeholder expectations but to allow for informed investment and policy decisions. By clearly articulating the financial impacts of the net zero transition, oil and gas companies can act responsibly and fulfill their social contract for being transparent about both current realities and future expectations."
