Approach to Climate-Related Issues
Climate Policy and Business Strategy
We recognize the importance of creating and implementing climate policy. We believe that our approach goes well beyond climate and, in fact, speaks to our business strategy, balancing the needs of the planet as expressed in the 2015 Paris Agreement, with a strong focus on shareholder return. These are not mutually exclusive. In fact, our success as a business provides us with the ability to innovate in ways that will continue to reduce our impact on the environment.
At Vermilion, we have always been committed to the priorities of health and safety, environmental stewardship, and economic prosperity – in that order. Our management of climate-related issues – both risks and opportunities – follows that approach, in which we focus on best-in-class performance, founded on our sustainability leadership within the oil and gas industry and our core values of Excellence, Trust, Respect and Responsibility. (For more information about our governance of climate-related risks, please see our Leadership section.)
We are deeply embedded in the low-carbon transition, guided by global initiatives that include The Paris Agreement and the United Nations Global Goals for Sustainable Development. We are actively engaged in this critical work, with a focus on supporting a stable and managed energy supply that meets the energy needs of our global customers and communities, while also ensuring financial and organizational sustainability. The low carbon transition requires collaboration from all parts of the energy value chain, from producers through governments, industry, communities and consumers. As a responsible exploration and production company, Vermilion is looking forward to continuing our collective efforts on climate-related initiatives while also considering the wider issues of environmental and social responsibility.
Our strategy focuses on the following key elements:
- Lower carbon fuels. We have shifted our production mix towards natural gas, as a cleaner burning fuel than other fossil fuels, and we continue to focus on reducing the carbon intensity of the oil and gas that we produce. This includes producing fuel that is used within the country of production wherever possible, contributing to a reduced carbon footprint associated with transportation of the fuel to consumers, and to increased national energy security.
- Greater energy efficiency. Many energy- and operational-efficiency initiatives go hand-in-hand, which in turn helps us to minimize our carbon footprint and reduce greenhouse gas emissions. G4-EC2 G4-EN19
- Lower greenhouse gas emission intensity. We are committed to reducing the greenhouse gas emissions associated with our production, with particular focus on methane.
- Socially responsible fuels. We operate in regions noted for their stable, well-developed fiscal and regulatory policies related to oil and gas exploration and development, and for their robust framework of health, safety, environmental and human rights legislation. We are committed to ensuring that our fuels are produced in the most environmentally and socially responsible manner possible, respecting worker rights and community engagement.
- Renewable Energy. We are continuing to pilot the production of renewable energy, including geothermal energy, for which our internal expertise in geophysics and drilling is particularly well suited. This work has begun with a focus on the geothermal potential of our produced water, which supports a circular economy model, and is expanding into other areas, including biogas and the conversion of traditional oil and gas assets to geothermal production.
- Transparency and Reporting. We have established a strong record of reporting on greenhouse gas emissions, energy usage and other key environmental metrics. This data is helping us to understand our opportunities for improvement, and we will continue to use it to determine emissions and energy reduction targets.
How We Manage Climate-Related Initiatives
We have been working to analyze science-based target setting in relation to our operations in critical areas identified by both internal and external stakeholders, including energy use, greenhouse gas emissions and water use. One issue is that a decarbonization pathway for the oil and gas sector has not yet been published by the Science-Based Targets initiative, so we are undertaking our own research into this area. Understanding that organizations often progress along a continuum of action, we have achieved the following milestones:
- Understanding our current situation: our sustainability reporting since 2012/2013 highlights the increasingly sophisticated and streamlined data collection process we are using internally, and continues to provide a platform from which to assess current levels, trending and comparisons to industry peers.
- Setting an internal carbon price: We have established location-dependent carbon pricing schemes for Scope 1/2 emissions as part of our risk management process, looking at the three most likely scenarios to impact our business in the next 5 years (low, anticipated and high carbon pricing). Our rationale is to determine the extent of the potential impact of carbon costs to Vermilion’s financial performance and competiveness, and where the risk exceeds thresholds, plan and implement mitigation measures. We review carbon pricing at the corporate level based on in-country results.
- Engaging in scenario analysis based on a 2°C warming limit, and the impacts related to it, including:
- Physical: temperature changes impacting our global locations, increasing severity of storms, rising sea levels, etc.
- Regulatory: carbon pricing, carbon sequestration programs, oil and gas exploration and production limits, etc.
- Changing consumer behaviour and technology: electric vehicles, replacement of coal by natural gas for electricity generation, etc.
- Increasing low carbon products: In 2016, we moved from a 60/40 production weighting of oil and natural gas respectively to a 50/50 split. We recognize that our natural gas – which provides the market with a power generation alternative that achieves approximately 80% energy efficiency and up to 50% cleaner burning than coal-fired electricity – is an important part of the transition to lower carbon energy. For example, if the natural gas produced by Vermilion on an annual basis in Canada were used for power generation as opposed to coal-fired power, the consumer would be able to avoid 2,839 ktonnes of CO2e. We continue to explore additional projects in this area, including using flared gas to produce electricity at our facilities to offset our power consumption.
- Comparing our performance to industry benchmarks: Our emissions reduction initiatives have resulted in Vermilion having a top quartile emissions intensity (emission rate per BOE produced) when compared against our peer group. This is a significant achievement, given that we do not have the benefit of a concentrated asset (as many of our peers have), which would support lower operational emissions. We therefore rely more heavily on innovation to reduce emissions.
- Anticipating changes in regulatory requirements:
- Update to Directive 039 in Alberta. This regulatory change led Vermilion to complete engineering reviews and facility updates that we estimate to total $1MM by the end of implementation in 2018. This will result in Criteria Air Contaminants reductions beyond regulatory requirements, and is a good example of how we are staying ahead of changing regulations.
- Participating in the MJA3 (Term Agreements on Energy Efficiency) programs in The Netherlands since 2005, with the result that our operations are 76% more energy efficient than our base year.
New Facility Construction: We employ new and efficient technology that adapts to changing requirements and has the potential to decrease our environmental impact. This includes:
- Canada Business Unit: In 2014 and subsequent years at a number of our new wells, we installed solar power as a primary power source, augmented with thermoelectric generation (TEG) for when the region lacks the necessary daylight to produce the energy required (seasonal augmentation)
- Corporate Headquarters: Our Calgary headquarters is located in a LEED Platinum office building, with our offices certified LEED Gold, including low-flow appliances and plumbing fixtures, Energy Star-certified computers and appliances, recycled content in furniture and carpet, and active participation in the building’s Zero Waste program.
- France: Vermilion constructed our Parentis offices to comply with the French Thermal Regulation RT2005, which is focused on reducing the greenhouse gas load by limiting the energy consumption of buildings.
Retrofit of Existing Construction:
- Ambes, France: In 2017, we replaced traditional 300W lighting systems in our crude oil storage facility with 98W LED bulbs. This provided better lighting, an increased life cycle from 6,000 to 60,000 hours, and a decrease in energy consumption of 6,000 kWh, or 66%. G4-EC2