Proactively addressing risks and opportunities
Devon is focused on producing reliable, affordable and accessible energy the world needs, while continuing to find ways to produce and deliver it more responsibly.
The world relies on oil and natural gas 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 to manufacture these materials.
At Devon, we’re proud to find and produce these valuable commodities and improve our way of life. Through the work our employees do every day, we contribute to local, state, 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 specific emphasis on climate change.
In its 2022 outlook, the U.S. Energy Information Administration (EIA) projects that oil and natural gas will continue to be leading sources of energy worldwide for decades to come. For example, in the transportation sector, gasoline and diesel fuel will account for 74% of total consumption in 2050. Devon will continue to produce the oil and gas the world needs in a safe, environmentally responsible and ethical way, and disclose our results publicly. Earning our stakeholders’ trust is important for the future of our business, so we’ll continue to plan for the risks and opportunities ahead.
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 macro-level scenarios – including acquisitions, divestitures and changes in regulations and market conditions – 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 factors into Devon’s long-range plan. We publicly report on climate-related risks and the results of our climate-related scenario analysis in our Climate Change Assessment Report (CCAR) in an effort to demonstrate our ongoing commitment to transparency.
Our 2023 CCAR, the fourth report in six years, was prepared by Devon with support from third-party consultants. Devon retained ICF to help assess the company’s market risk and our oil and natural gas portfolio’s resilience in the face of potential impacts of climate policy on oil, natural gas, and natural gas liquids (NGL) demand, production and prices, as well as basin-level exposure to potential physical risks from a rapidly changing climate. In order to evaluate the potential market risks to the company’s portfolio from a possible carbon-constrained future, Devon evaluated pricing scenarios and model results from both ICF and the widely referenced International Energy Agency (IEA), including the IEA’s 2022 World Energy Outlook (WEO) Net Zero Emissions by 2050 Scenario, which targets a 1.5°C stabilization in the rise in global average temperatures.
In order to evaluate the potential physical risks to the company’s assets, Devon considered a representative set of climate projections for a range of climate and extreme weather hazards related to temperature, precipitation, drought and winter storms through the late-21st century. The climate projections were based on scenarios from the Intergovernmental Panel on Climate Change (IPCC).
In addition, Devon retained ClimeCo to enhance the company’s alignment to the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD), an international, multi-industry led initiative launched to develop recommendations for voluntary disclosure of climate-related risk. The 2023 CCAR includes additional metrics and disclosures corresponding to the TCFD’s updated 2021 implementation guidance, demonstrating our support for the ongoing efforts of the TCFD.
The 2023 assessment determined that oil and natural gas will remain essential to meeting global energy demand, even in the carbon-constrained future scenarios. Additional conclusions included:
- Under base case scenarios, global demand for oil and natural gas grows until 2030 and then levels off while prices increase for the duration of the forecast period until 2050.
- Under carbon-constrained future scenarios, demand for oil and natural gas is substantially reduced. However, even in such carbon-constrained scenarios, oil and natural gas remain crucial to meeting global energy demand and North American oil and natural gas production plays a large role in meeting that demand.
- The assessment concludes that our assets are likely to be well positioned to remain profitable even in aggressive low-carbon scenarios. Furthermore, the changes in Devon’s portfolio—the acquisitions of RimRock Oil and Validus Energy—have made the company more resilient in low oil and natural gas price scenarios.
Ambitious emissions reduction targets
In 2019, we set a methane intensity target of 0.28% or lower by 2025, and then beat the target level in 2020. In June 2021, we reinforced our commitment to proactively manage climate-related risks and opportunities by establishing additional environmental performance targets to limit GHG and methane emissions in our operations. These operational emissions performance targets are in line with leading industry practices and stakeholder priorities. These targets, endorsed by our board, are the following:
- Achieve net zero GHG emissions for Scopes 1 and 2 by 2050
- Reduce Scopes 1 and 2 GHG emissions intensity by 50% by 2030 (from a 2019 baseline)
- Reduce methane emissions intensity by 65% by 2030 (from a 2019 baseline)
- Achieve flaring intensity of 0.5% or lower by 2025 and eliminate routine flaring by 2030
As we strive to meet or beat these targets, Devon will continue to apply a wide range of advanced technologies and best practices, in tandem with increasing efficiencies, and is committed to providing transparent updates on our progress.
Devon closely monitors possible business impacts of climate change in the market and policy arenas, and we’re prepared to adapt as needed. We’re committed to ongoing 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.