A deal to sell 38,000 hectares of Alberta oil and gas lands to a company controlled by the Canada Pension Plan Investment Board (CPPIB) is shining a light on large fossils’ favourite path to decarbonization: rather than shutting down some of their assets, they hand them off to smaller operators that then keep them in production.
The practice makes companies like Madrid-based Repsol SA look like they’re getting serious about drawing down the fossil fuel operations that account for 86% of the carbon dioxide emissions fuelling the climate crisis. But it often leaves older oil and gas fields nearing the end of their operating life in the hands of smaller buyers that may lack the financial capacity to manage them safely and clean up the well sites when they eventually shut down.
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That’s particularly the case in a jurisdiction like Alberta, where fossils have no further obligation to clean up after themselves once they’ve sold off their oil and gas infrastructure, one analyst has told The Energy Mix.
Repsol was the world’s 23rd-largest fossil company by revenue in 2021, with €52.13 billion in revenue. The lead headline on its website touts its “ambitious roadmap with specific targets” toward decarbonization. Its latest annual report [pdf] shows its “commercial and renewables” division—which includes products like lubricants and liquid petroleum gas along with a healthy solar, wind, and hydropower portfolio—producing €145 million in profit over the last three months of the year, about one-sixth of the company-wide total.
Within the division, renewables and low-carbon generation posted the biggest gain, at €31 million compared to the same quarter in 2020.
But Repsol’s sale of the 6,800-barrel-per-day Chauvin heavy oil reservoir to Calgary-based Teine Energy shows some of that activity being financed by selling off properties that will continue pouring greenhouse gases into the atmosphere. In an early September exclusive, Reuters said the deal would bring Repsol up to $400 million in revenue.
Teine Energy announced it had closed the deal on September 29.
“The potential sale includes Repsol’s heavy oil and gas producing assets and the midstream infrastructure supporting these, like a network of about 1,800 kilometres of pipelines,” Reuters wrote. In addition to helping the company “cash in on an oil and gas bonanza” due to high prices, the deal “would also allow Repsol to divert cash and efforts in more prolific shale regions, like the Eagle Ford shale play in the United States, or boost renewables investments.”
Your Retirement Savings at Work
CPP Investments, which says it provides the “foundation upon which 21 million Canadians build their financial security in retirement,” holds a 90% stake in Teine Energy, according to Toronto-based Shift Action for Pension Wealth and Planetary Health.
The pension fund’s history with Teine goes back to 2011, when it handed [pdf] the company C$204 million in financing to expand its oil drilling operations in Saskatchewan. In 2016, CPPIB funded Teine to buy $975 million worth of oil and gas properties in southwestern Saskatchewan, with 16,300 barrels per day of capacity.
CPP Investments now places its stake in Teine at $1.3 billion.
Shift Action Senior Manager Patrick DeRochie said the latest deal is not a good look for the fund.
“This might not be CPP Investments’ decision, but we should expect a pension fund to question the wisdom of owning a company that’s ignoring the scientific consensus that new oil and gas production must end immediately to secure a 1.5˚C future,” he told The Mix in an email. “CPPIB-backed Teine Energy is instead gambling $400 million on an assumption that oil and gas will continue to be profitable in the longer term, when the evidence suggests the industry faces structural decline.”
DeRochie said the deal is “even more perplexing” with the managing director of CPPIB’s Sustainable Energies Group, David Chambers, serving on the Teine Energy board of directors. On its website, CPPIB calls climate change “one of the most significant physical, social, technological, and economic challenges of our time,” creating “pervasive and dynamic” impacts that will lead to “physical and transition risks, such as water scarcity, biodiversity, extreme weather, and policy and market risks.”
A trustee of the 400,000-member Healthcare of Ontario Pension Plan (HOOPP), Nicholas Zelenczuk, also holds a seat on the Teine board, DeRochie said.
A CPP Investments spokesperson declined to comment on the Repsol buy, but said the fund isn’t about to step away from its fossil industry investments.
“For the foreseeable future, conventional energy will continue to form a major part of the overall energy mix,” he said in a mid-September email. “In addition to earlier-stage companies innovating to enable the energy evolution, we also support responsible conventional energy companies that are committed to reducing their emissions and are well positioned for the energy evolution.”
The spokesperson added that “blanket divestment is counterproductive to achieving climate goals. Divestment from high-emitting sectors means losing our ability to support the whole economy transition and influence through engagement. The likelihood of reaching global net-zero goals will be significantly improved if the ingenuity, expertise, and resources of existing companies, including high emitters, are retained in our portfolio.”
But there’s growing skepticism that shareholder engagement strategies like CPPIB’s will drive down emissions at the pace the science demands. Especially when cutting carbon pollution from one fossil company, like Repsol, only increases it from another, smaller one, like Teine Energy.
“There’s a difference between a company meeting its own net-zero plan and contributing to efforts to meet the planet’s,” wrote Bloomberg News reporter Eric Roston, in a wider opinion piece on what he called “dirty power whack-a-mole” in the electric power sector.
“For instance, oil and gas companies may sell their polluting assets to meet climate commitments. But it makes no difference to the atmosphere if private equity firms then buy and operate them,” he wrote.
“We’re seeing an increasing trend toward pass-the-buck environmentalism,” Gavin McCormick, co-founder and executive director of technology non-profit WattTime, told Roston. The unstated assumption is that “‘I can optimize my carbon footprint. That’s going to increase everybody else’s, but I get to claim I’m green,’” he said.
Researcher Regan Boychuk, co-founder of the Alberta Liability Disclosure Project, said that kind of carbon accounting sleight-of-hand was made easier in the province by a court of appeals decision in 1991. It affirmed that original owners never have to “look backwards” when they sell off the clean-up costs and other liabilities that come with their more marginal fossil assets.
“They’ve been selling or giving away these licences in Alberta for 30 years,” he said in an interview. “We don’t hold previous owners accountable, so we give every incentive for oilmen to loot as much as they can get away with.”
Boychuk said he wasn’t familiar with Teine Energy, but cited another case where a small company bought old assets in Alberta from one of the world’s biggest fossil producers.
“It’s emblematic of the dilemma of the sunset of oil,” he said. “That was an insolvent company with no future profits that could fund the cleanup,” and yet concerned residents in surrounding communities were denied a quasi-judicial hearing to challenge the deal.
The purchase can still give a marginal company a new lease on life, Boychuk added. “The value for the local company is those hectares, those whole reserves,” he explained. “That collateral is good as gold for borrowing money,” even if it means taxpayers will eventually be stuck with the cleanup costs for orphaned and abandoned wells.
On its website, Teine Energy describes itself as a company that produces 33,000 barrels of oil/equivalent per day, owns a million acres of developable land, has completed large-scale projects worth a combined $3 billion, and is growing at a rate of 20% per year. But the company has no communications officer, and multiple attempts to request comment for this story were unsuccessful.
“We don’t normally do stuff like that,” said one staffer, who declined to identify himself.
Stephanie Murphy, Teine’s director of health, safety and environment, said she was “not aware of any information to be shared” on the Repsol deal. She said a spokesperson would return a call from The Energy Mix that day, but more than two weeks later, there’s been no reply.