Drone inspecting operations

As described in the Risk Management section, we evaluate and track our climate-related risk through our SD Risk Register and Climate Change Action Plan. Those risks broadly fall into four categories:

  • Greenhouse gas (GHG) related policy.
  • Emissions and emissions management.
  • Climate-related disclosure and reporting.
  • Physical climate-related impacts.

The time horizons we use for climate-related issues are based on the time taken for the risks to manifest themselves, our planning time horizons and the time required to realize the majority of the net present value of our projects.

Short-Term Risks

Our short-term time horizon is one to five years, during which we can complete short-cycle drilling campaigns and small projects. Our GHG forecasting and financial planning processes are used to determine risks and opportunities that could have a material financial impact for that period. Our short-term climate-related risks are generally government policy-related and managed at the business unit level through policy advocacy and technology to reduce emissions.

Regulations to address climate-related risk, including GHG emissions, are a short-term risk for several of our businesses. For example, regulations issued by the Alberta government in 2019 under the Emissions Management and Climate Resilience Act require any facility existing in 2016, with emissions equal to or greater than 100,000 metric tons of carbon dioxide or equivalent per year, to reduce the net emissions intensity, with reduction increases over time. The cost of compliance and investment in emissions-intensity reduction technologies influence investment decisions for the Canada business unit, where we are purchasing carbon offsets while evaluating and developing technology opportunities to reduce emissions for existing and new facilities. A good example of technology development is our piloting and roll-out of non-condensable gas co-injection at our oil sand operations, which have improved steam-to-oil ratios by 20-30% in 2019, thereby decreasing GHG intensity.

GHG or carbon prices are another near-term risk in some jurisdictions where we operate. For example, in our Norway business unit, we are managing carbon price risk with specific actions to study emissions reduction opportunities, and we also evaluate project economics with full Norwegian CO₂ tax and European Union emissions allowance costs.

While a price on carbon in the U.S. will increase our costs and decrease demand for our product, we support a well-designed pricing regime on carbon emissions as the most effective tool to reduce greenhouse gas emissions across the economy. By putting a price on carbon, the U.S. would also maintain the energy advantage it currently has while at the same time building credibility with OECD countries and incentivizing other countries to also price carbon. We are a Founding Member of the Climate Leadership Council (CLC), a collaboration of business and environmental interests working to develop a carbon dividend plan for the U.S. The plan has four key pillars: a gradually increasing price on carbon, a carbon dividend, border carbon adjustments and regulatory simplification. Read more about the carbon dividend plan.

Medium-Term Risks

Our medium-term time horizon is six to 10 years, during which we can complete most major projects and revise our portfolio significantly if required. Our GHG forecasting and financial planning processes are used to determine the risks and opportunities that could have a material financial impact for that period. Medium-term risks take longer to impact our business and may include emerging policy that is not yet fully defined. These risks are managed by business unit planning, but if significant, may also be managed by corporate strategies and company-wide risk assessments.

Offset requirements have been identified as both a medium-term risk and as an opportunity for some business units where carbon offsets can be used for compliance with an emissions reduction program.

Chronic physical changes are a medium-term risk for some of our operations. Temperature extremes could impact facilities located in Arctic regions if warmer temperatures reduce the length of the ice road season and restrict well and facility construction times. Mitigation measures could include utilizing gravel road connections to reduce reliance on ice roads, pre-packing to extend the start of ice road season and constructing roads that prevent permafrost thawing. 

Long-Term Risks

Our long-term time horizon is 11 years and beyond. Generally, long-term risks are managed by our scenario analysis and climate-related risk strategy, as they include long-term government policy, technology trends and consumer preferences that affect supply and demand. They may also include risks that align with long-term physical climate scenarios.

We recognize that our GHG intensity will be compared against peers, so we track this as a competitive risk at the corporate level. Investors, the financial sector and other stakeholders compare companies based on climate-related performance, and GHG intensity is a key indicator. For this reason, our GHG intensity target aligns with the long-term time horizon to ensure we manage the risk appropriately. It also demonstrates our goal to be a leader in managing climate-related risk.  

Both chronic and acute physical climate risks are a long-term risks for our business. In some parts of the U.S. we have identified potential storm severity as a risk for future operations, based on previous storms and flooding. Science suggests that future extreme weather events may become more intense or more frequent, thus placing at risk our operations in coastal regions and areas susceptible to typhoons or hurricanes. We have a crisis management system in place to manage that risk before, during and after a storm event.

Read more about our Risk Register and Climate Change Action Plan.