Climate-Related Risks and Opportunities
We have categorized our key environmental and climate-related risks into the following areas: (i) Policy and Legal Risks, (ii) Market/Technology Risks, (iii) Reputational Risks and (iv) Physical Risks. The following is a summary of these climate-related transition and physical risks. For a more detailed discussion of these risks, please see the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Policy and legal risks that we have identified include, but are not limited to, legislation, regulations or other measures relating to emissions, our products and services, and the oil and gas industry generally. We monitor and evaluate how to manage risk related to the actions and proposed actions of local, state, regional, national and international regulatory bodies on greenhouse gas emissions and climate change issues. Proposed actions include, but are not limited to, the imposition of cap-and-trade programs, carbon taxes, GHG reporting and tracking programs and regulations that directly limit GHG emissions from certain sources, and prohibitions on, or increased regulation of, drilling and pressure pumping activities. Continued efforts by governments and non-governmental organizations to reduce GHG emissions appear likely, and additional legislation, regulation or other measures that control or limit GHG emissions or otherwise seek to address climate change could adversely affect our business.
Our business depends on the level of activity in the oil and natural gas industry, and many of the above policy proposals, if implemented, could negatively impact our customers’ ability and willingness to develop their oil and natural gas reserves, which could decrease demand for our services.
To address these risks, we work with our customers on mutually beneficial solutions to support their climate and emissions-related targets, scenarios and goals through our provision of lower-emissions equipment, technology and software solutions that increase efficiency and reduce emissions in our and our customers’ operations. If we can enable lower-emissions operations by our customers, we can help to reduce our customers’ exposure to the adverse effects of potential climate-related regulation, and thus maintain demand for our services.
Please see “Environmental – Air Quality, Greenhouse Gas Emissions and Energy Usage” for additional detail regarding these efforts.
In addition to the impact on our customers described above, climate-driven restrictions and increased regulations on our drilling and pressure pumping operations could limit or delay our operational activities, increase our operating costs and result in additional regulatory burdens, which could make it more difficult to perform our services and increase our costs of compliance and doing business.
To address these risks, we continue to monitor and assess any new policies, legislation or regulations in the areas where we operate to determine the impact of GHG emissions and climate change on our operations and take appropriate actions, where necessary.
Market and technology risks that we have identified include the potential substitution of traditional oil and gas services and products with lower-emissions options, as well as potential costs to transition to lower-emissions technology. These risks are driven by market demand, as our customers attempt to satisfy their own climate targets, scenarios and goals and respond to regulatory and stakeholder requirements for lower-emissions operations.
Legacy oil and gas assets and technology may be made obsolete due to shifting market preferences, and we may need to continue to develop assets and technology to satisfy demand for lower-emissions operations and services. To the extent any existing assets and technology are made obsolete, we may face write-downs and early retirements of assets.
We address this risk by developing new products, software and services, and creating mutually beneficial solutions with our customers to meet growing demand to increase efficiency and reduce emissions generated by their operations. These developments may result in a need to increase our capital expenditures, reallocate capital and increase research and development expenditures. We may need to partner with other companies and technology providers to support any lower-emissions operations and services.
Another market risk we have identified is that fuel conservation measures, alternative fuel requirements and increasing consumer demand for alternatives to oil and natural gas could reduce demand for oil and natural gas. The increased competitiveness of alternative energy sources (such as wind, solar, geothermal, tidal, and biofuels) could reduce demand for oil and natural gas, and therefore for our services.
Reputational risks that we have identified are primarily related to the stigmatization of the oil and gas sector due to the increasing weight put on climate change issues by regulatory bodies, the investment community, and others. The lending and investment practices of institutional lenders and investors have been the subject of intensive lobbying efforts in recent years, oftentimes public in nature, not to provide funding for oil and natural gas producers. Limitation of investment in and financing for oil and natural gas could result in the restriction, delay, or cancellation of drilling and completion programs or development of production activities.
In addition, an increasing number of our customers consider sustainability factors in awarding work. If we are unable to successfully continue our sustainability enhancement efforts, we may lose customers, our stock price may be negatively impacted, our reputation may be negatively affected, and it may be more difficult for us to effectively compete.
If the reputation of our industry generally, or our company specifically, is impacted by climate change concerns, this could result in a reduction in capital availability and/or an increased cost of capital, both for us and our customers, and may reduce demand for our services and have an adverse effect on our business. While we have a limited impact on the overall reputation of our industry, we seek to address our company-level reputational risks through our continuing development of lower-emissions equipment, technology and software solutions, as well as related marketing outreach efforts to promote our efforts.
Increasing concentrations of GHGs in the Earth’s atmosphere could trigger significant physical effects from climate change, such as increased frequency and severity of storms, floods and other climatic events, which could have an adverse effect on our operations.
Our facilities are onshore in the United States and are generally not located in low-lying areas that are subject to physical risks for climate change such as flooding and rising sea levels. However, our operations are subject to other physical risks, including, for example, the potential risk of increased heat stress on our personnel and equipment should temperatures rise due to climate impacts. To address this risk, our management system includes policies relating to safety, including procedures for hot weather work. Should temperatures rise, there is a potential for these procedures to be used more often, and increased stress to be put on our equipment, both of which may result in increases in our operating and capital expenses. If climate change leads to more extreme weather, we could also experience negative weather impacts to our facilities and jobsites.
Water used in our operations is purchased and controlled by our customers. However, if water shortages become acute in our areas of operation due to climate change or regulatory impacts, such shortages (and related restrictions on water use) could negatively impact our ability to perform services, and customers’ demand for our services, in such areas.