Increasing fossil fuel production is highly rewarded at most of the world’s largest oil and gas producers, despite their ambitious climate targets, according to a report from the financial think tank, Carbon Tracker.
The study entitled, 'Crude Intentions II', analyses the 2022 policy of incentives at 25 of the largest publicly-listed companies by production volume based outside Russia.
It found that only one of these companies – Occidental Petroleum – doesn't promise extra pay for such growth.
The worst offenders
Despite a growing number of companies rewarding executives for preparing for the transition to greener energy, the report found that their pay policies continue to reward senior staff to increase fossil fuel production.
In some cases, these were framed as part of the transition, incentivising ‘low carbon’ investment to drive growth in ‘natural’ gas, promoting gas as a ‘low carbon’ or ‘transition’ fuel.
The report singles out a number of companies, including BP, Chevron, ExxonMobil, and TotalEnergies. It says that although they are championing strategies that are framed around transition, all are using incentives to grow production.
Researchers found companies with some of the most ambitious climate policies are among the worst offenders.
While companies like Eni, and Repsol have pledged cuts of 30-35% by 2030, production growth targets still determined 29% and 23% of management pay respectively in 2022, according to the report.
US-based Exxon Mobil (27%), British Petroleum (22%) and Shell (23%) are also among the companies with the highest rates of remuneration in 2022.
How the current policy collides with investors' long-term interests
Senior executives and directors set the long-term strategic goals of the major oil and gas companies and it's clear that their decisions are highly influenced by the corporate incentives offered to them.
Investors should be concerned executives are continued to be incentivised to grow production volumes, and develop new long-cycle assets, particularly if this is contrary to stated company strategy.
Oil and gas companies, by still rewarding executives for increasing/expanding fossil fuel production, operate under the assumption that fossil fuel demand will continue to grow, despite the energy transition.
According to the International Energy Agency, demand for oil, gas and coal is expected to peak sometime before 2030, yet evidence suggests most companies are not yet planning for a decline in production, says the report.
Out of the six biggest oil companies, five are currently planning to either increase production or keep it unchanged over the medium term (Shell). Total Energies has plans to increase production by 45% by 2030 compared to the 2022 levels, Chevron plans for +33% by 2027, while Eni and ExxonMobil foresee +15% by 2026 and +12% by 2027 respectively.
"The energy transition is accelerating, and oil and gas companies must plan for peaking demand for their product," said Carbon Tracker Head of Oil, Gas and Mining, Mike Coffin. "Investors should be concerned executives are continued to be incentivised to grow production volumes, and develop new long-cycle assets, particularly if this is contrary to stated company strategy. Asset Owners and Asset Managers should use their votes accordingly to ensure that executives are acting in their best long-term interests."
