North American Oil & Gas Pipelines

NOV-DEC 2018

North American Oil & Gas Pipelines covers the news shaping the business of oil and gas pipeline construction and maintenance in North America, including pipeline installation methods, integrity management innovations and managerial strategies.

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32 North American Oil & Gas Pipelines | NOVEMBER/DECEMBER 2 018 regarding better governance and preparedness on climate change. Climate resolutions brought by concerned shareholders have won increasing investor support. In 2017, the first majority votes on climate change reporting disclosure passed at Exxon Mobil, Occidental Petroleum and PPL; 2018 followed suite when Anadarko Petroleum and Kinder Morgan had majority votes to publish an assessment on how their portfolios could be affected under a 2 degrees Celsius scenario. Kinder Morgan also had a shareholder proposal to report on plans to measure, monitor and mitigate methane emissions resulting from all operations, including storage and transportation, according to a 2018 shareholder memo on methane emissions by Miller Howard Investments. This resolution did not pass for Kinder Morgan. However, Range Resources did receive a shareholder majority vote for this type of methane proposal. This is a clear message to energy companies: upstream, midstream and downstream players must be prepared to disclose how they plan to adapt and transition to a low emission, low carbon economy. Beyond the argument of climate change, midstream oil and gas activities face other key challenges around ESG, all of which investors evaluate. Leaks or accidental discharges, let alone damage to ecologically sensitive land, can lead to tremendous legal fines and what could be significant reputational damage. Pipeline rights-of-way and the impact on social and human rights are other sources of breaking ESG-related headline news. Pipeline companies are well versed in the fact that their social license to operate is entirely dependent on developing both trusting and engaging relationships with local communities and impacted stakeholder groups. These relationships are proven to directly link to a company's bottom line, driving senior management's attention. If a midstream company does not properly conduct due diligence to actively involve impacted stakeholders in the buildout of their pipeline infrastructure, expensive problems can result. Whether it is delayed construction or suspended operations due to well-publicized protests, uprisings, or even physical damage, these impacts have been shown to cost millions, not to mention the tangential cost of diverting C-Suite level attention to these issues versus running day-to- day company operations. Companies that prevent and proactively manage these environmental and social impacts can avoid expensive project delays- and worst case, project shut downs, legal liabilities and environmental remediation and cleanup costs. Best in class companies will most likely be favored for future capital allocation when new project development opportunities arise. Finally, midstream companies are also feeling the pressure, as is the entire oil and gas industry, to divulge on certain 'G' factors of the ESG equation. Governance metrics at the forefront of ESG risk analysis includes political spending, board independence, board diversity and executive compensation. These issues tend to drive significant weighting in external rating agency scores or proxy research reports. Companies are quickly acting to more transparently publish information on these metrics since these scores are often the indicators that investors reference when making portfolio allocation decisions. U.S. midstream companies presently find themselves at a critical juncture — adapting to the pressing need for new pipeline infrastructure, while at the same time, integrating the risks associated with a carbon constrained future and managing anti-industry rhetoric. These considerations fall at complete opposite ends of the spectrum. What is the solution? By proactively engaging in ESG risk mitigation policies and standards, companies can begin to walk the line on these divergent issues. ESG strategies will facilitate capital allocation for infrastructure build out — investors see the opportunity for superior business performance, higher valuation, lower cost of capital and enhanced risk-adjusted returns. Not to mention the critical environmental and social issues that are tangentially addressed through these enterprise risk management strategies. This paradigm shift is one that is occurring now and will continue to drive business strategy into the foreseeable future. Alanna Fishman is director of policy and social responsibility at HBW Resources, a consulting and advocacy rm based in Houston with oces nationwide. By proactively engaging in ESG risk mitigation policies and standards, companies can begin to walk the line on these divergent issues.

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