Devon is accountable to our stakeholders to assess the risks to our business in a carbon-constrained future, at the same time helping to meet the ongoing global demand for hydrocarbon energy.
Oil and natural gas are vital to our way of life. The world relies on these resources to power the basic systems of our daily lives – transportation, heating and cooling, lighting, manufacturing, agriculture, telecommunications and technology. Many of the products we use every day are made from plastics and compounds derived from oil and natural gas, which also fuel the machinery needed to manufacture these materials.
At Devon, we’re proud to find and produce these valuable commodities and, through the work our employees do every day, to contribute to local, national and global economies. We also recognize that the economic benefits of our industry must be balanced with care for the environment. Devon is focused on delivering strong returns to our shareholders while continuously improving our environmental performance, with particular focus on climate change.
The U.S. Energy Information Administration projects oil and natural gas will continue as leading sources of energy worldwide for decades to come. For example, EIA’s 2020 energy outlook projects in the transportation sector, gasoline and diesel fuel will account for 74% of total consumption in 2050. Electricity will grow quickly in transportation but EIA projects it will reach only 2% of total consumption in 2050. In electricity generation,EIA projects that renewables will continue to grow rapidly, but won’t overtake natural gas until 2045.
Devon will continue to produce the oil and gas the world needs in a safe, environmentally responsible and ethical way. We’ll do this because being a good neighbor and always doing the right thing are two of our core values. It’s also important for the future of our business – and another core value, delivering results – that we plan for the risks associated with the energy transition and climate change.
Assessing and reporting our climate change-related risks
Climate change-related risks receive formal and ongoing consideration in Devon’s enterprise risk management process. The company regularly models numerous regional and macrolevel scenarios – including changes in regulations or market conditions, acquisitions and divestitures – to test the strength of our portfolio and resources. Each year, the modeled scenarios inform the strategic decision-making of Devon’s executive committee and board of directors that culminates in Devon’s annual long-range plan.
We reported on these risks in our 2018 Climate Change Assessment Report, which was prepared with a leading third-party consultant, ICF, and was reviewed and approved by our board of directors. The report assessed our oil and gas portfolio in relation to several possible future climate-change scenarios to quantify the risks to Devon from aggressive global carbon-reduction policies, modeled through 2050. We evaluated pricing scenarios and model results from both ICF and the widely referenced International Energy Agency (IEA).
The assessment focused primarily on the transitional risks proposed by TCFD (Task Force on Climate-related Financial Disclosures), an international body that develops recommendations for consistent disclosure of climate-related risk. Transition risks include policy and legal, technological, market and reputation risks. In response to stakeholder interest, we specifically reported on the risks of potential changes in demand and price for oil and natural gas as a result of policies related to greenhouse gas reduction.
The assessment determined that oil and natural gas will remain vital to meeting global energy demand, even in the carbon constrained future scenarios, and that Devon’s portfolio of assets has the characteristics to be resilient in these scenarios. Additional conclusions included:
- Devon’s assets are likely to be well-positioned to remain profitable, even in an aggressive low-carbon scenario.
- Model results under some low-carbon scenarios (for example, the IEA Sustainable Development Scenario) reflect that oil, natural gas and natural gas liquids (NGL) prices will be robust and Devon’s current portfolio is likely to thrive under these scenarios.
Devon will publish an updated climate change assessment report by year-end 2020. The report will consider material changes to our portfolio, such as the divestment of our assets in the Canadian oil sands and the Barnett Shale, as well as any changes to pricing scenarios.
Proactively managing climate-related risks and opportunities
We’re addressing climate change-related risks proactively in our environmental, operational and governance practices. We believe energy efficiency and conservation are the most immediate and cost-effective ways to reduce emissions, as well as innovation and operational excellence. To reduce methane emissions, we established a voluntary, company-specific methane intensity target of 0.28% or lower by 2025. Setting this public target requires us to pinpoint sources of methane emissions by implementing reduction technologies and work practices that go beyond regulatory requirements. Achieving the target is a component of executive and employee compensation, as is short term emissions performance. To further engage our workforce in improving our air emissions performance, we have a nonmonetary recognition program for all employees who improveenergy efficiency and/or reduce greenhouse gas emissions by applying technology.
Devon closely monitors climate-change impacts in the market and policy arenas, and we’re prepared to adapt our business if needed. We’re committed to continuing dialogue with our board of directors, shareholders and other stakeholders about our climate change-related risks and opportunities. Our industry will play a pivotal role in delivering global energy for generations to come, and Devon is embracing change to be part of that future.