9 November 2017
This morning at the Annual General Meeting of Karoon Gas in Melbourne, Chairman David Klingner expressed that setting targets in terms of Karoon’s GHG emissions will be meaningless. This is completely contradictory to the company’s commitment to disclose information in accordance to the final recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD).
The TCFD recommends companies set clear metrics and targets to assess and manage relevant climate-related risks, including disclosing greenhouse gas emissions. This was Mr Klingner’s response to a shareholder’s question about why emission targets and timeline have not been set:
Despite mounting evidence that no new fossil fuel exploration should be pursued if global warming is to be contained to 2 degrees, Karoon revealed plans to expand its asset portfolio in Brazil, Peru and Australia. The company’s Echidna facility in the Santos Basin of Brazil will potentially produce 28,000 barrels of oil per day during peak production after if it begins operation in 2020.
In the views of company executives, global oil supply must increase over the medium to longer term. Despite poor price signals in FY2017, the company has made new acquisitions for oil discoveries in Brazil at a cost of US$20.5 million, and new oil and gas exploration licences in Offshore Ceduna Sub-basin in the Great Australian Bight. These significant investments seem out of line with the view expressed in Karoon’s sustainability report, which states “Karoon understands the increasing need for a transitional fuel that will be less emission intensive than fuels such coal and oil”.
Perhaps Karoon’s $41 million dollar expenditure on reserve exploration and evaluation last financial year can be explained by the fact that company executives stand to gain thousands of dollars in bonus remuneration for new asset acquisitions and farm-outs. This is despite the enormous losses of AU$81.5 million and zero dividend payout to shareholders during FY2017. In response to whether Karoon plans to continue rewarding remunerations to company executives for new acquisitions and farm-outs of oil and gas reserves in the future, Mr Klingner responded:
On the back of that answer, there could hardly be a clearer case of a company whose business and views are completely out of line with the aims of the Paris Agreement. Major investors, like our super funds, must demand fossil fuel companies like Karoon Gas produce a viable business plan showing how they will reduce emissions in line with the requirements of the Paris Agreement. If companies fail to produce, implement or follow these plans, funds must vote against the re-election of directors, or divest.
Dubious on the Paris Agreement
Karoon’s prized possession in the Great Australian Bight’s Ceduna Basin was met with disparate views at last year’s AGM, where some shareholders expressed fear of losing their money over possible stranded assets. The position has not changed much after a year since it received exploration permits. In 2016, oil giant BP abandoned its $1.4 billion offshore drilling program in the Bight; Chevron this year followed suit by dumping their $500m drilling plans in the Bight on grounds of low oil prices. A shareholder asked the board how a smaller company like Karoon perceives it will make money with such an asset where drill sites are deep and therefore costly to explore. Klingner said Chevron’s decisions to abandon the Bight had nothing to do with environmental or reputational risks, but rather commercial risks. According to Klingner, Karoon is still pursuing the project is because the company’s opinion of those commercial risks differs from that of the larger companies.
Although Karoon claims to consider climate-related risks in its Risk Matrices, “Climate Risk” is not identified as a key business risk. When a shareholder at the AGM today asked why this was the case, PricewaterhouseCoopers auditor responded by saying it is too difficult to quantify climate risk to financial accounts. Climate change poses physical and transitional risks on a company like Karoon that is completely reliant on fossil fuels. Company executives could even face legal action for not heeding to the potential impact of climate change on their business.
It appears that Karoon is in no better position than last year where the company Chairman said “Reducing our emissions would be a pointless gesture”. In the face of a changing landscape of the energy and resource business the question remains how the company plans to manage future commitments to a zero-carbon economy once all its oil assets are in full operation as it is promising to its investors. It just does not strike a chord with the Paris Agreement.