Energy financiers are urging oil and gas leaders to continue their ESG advancements, with one saying the next Democrat in the White House “will be even worse than the last.”

Wade Webber, a managing director for Cresta Fund Management, said, “It’s important to separate with ESG what it actually is versus the kind of ‘label’ that it's become. It has kind of become this polarizing term and it's become something that's associated with woke capitalism.”

Webber was among panelists at Hart Energy’s Energy Capital Conference in Houston on June 4, the day after Texas lifted a ban on making further investments in funds managed by ESG advocate BlackRock Inc.

“I am pleased to announce a significant decline in the number of investment funds that boycott the oil and gas industry,” Texas Comptroller Glenn Hegar said in making the announcement.

Dallas-based Cresta, which has $1.6 billion of assets under management, has viewed the “E” or environmental part of ESG as being good stewards of assets, Webber said. “That's good business.”

Abby Stavinoha, a vice president of Houston-based EnCap Flatrock Midstream (EFM), which manages more than $9 billion of investments, said ESG is “timeless.”

“The core of what the ESG movement was trying to do and how the industry functioned before and after the hype of it is certainly timeless,” Stavinoha said.

One aspect is safety that ensures “employees and contractors go to work and come home to their families each and every day.”

Others are minimizing methane and other releases and adhering to regulatory compliance.

“It's just the way that good oil and gas operators operate,” Stavinoha said. “These are conversations and topics that we absolutely have at the EFM board level, and I know they're important conversations across the industry.”

Chris Joseph, a New York-based managing director for Blackstone Credit, said, when discussing federal tax credits for carbon capture, that some CO2 pipeline projects, “even though there was an environmental angle [and] a social angle to that, they met a lot of opposition locally.”

Joseph’s credit desk is part of investment firm Blackstone, which has more than $1 trillion of assets under management.

One contentious project is Iowa-based Summit Carbon Solutions’ CO2 pipeline through South Dakota, which is on hold as the state’s Supreme Court ruled CO2 is not a commodity and therefore does not carry eminent-domain status.

Another was Houston-based Navigator CO2 Ventures’ Heartland Greenway project, also in the Midwest.

Joseph said, “People didn't care that the pipeline was carrying relatively harmless carbon. They didn't want pipelines coming through their communities.”

In 2023, the pipeline developer said in a statement canceling the project that it “has been challenging” and cited “the unpredictable nature of the regulatory and government processes involved, particularly in South Dakota and Iowa.”

‘Think about that’

Oil and gas investor Wil VanLoh said the ESG-driven hydrocarbon-divestment wave in the early part of this decade was apparent when Quantum Capital Group was raising its latest fund.

The fund was finalized in October 2024 with $5.25 billion for Houston-based Quantum Energy Partners VIII, along with $2.8 billion for Quantum Capital Solutions II and $2 billion for other Quantum investment vehicles.

“It was the toughest fundraise that we ever had, probably even harder than the very first fund that we raised,” said VanLoh, who founded the Houston-based investment firm in 1998.

“It took us over two and a half years to raise that fund.”

Prior funds were raised in six to nine months. In its 27 years, Quantum has raised and invested more than $30 billion.

“It was brutal a lot of the time,” VanLoh said of the most recent raise. “I actually spent a lot of time back in ’22 and ’23 when we first started pre-marketing the fund, trying to explain to investors why humanity would still be using oil and gas within the tenure life of the fund.

“Think about that.”

The tutorials were 101 level, a “first grade-type education.”

Ultimately, the investor base in Fund VIII consisted of only half of those who had invested in Fund VII.

“Normally, we will have re-up rates of 92% to 98% and we had re-up rates just shy of 50%,” he said. That's despite that, in past funds, “our returns were spectacular.”

‘Function of fear’

Instead, “it was a function of fear,” VanLoh said.

President Biden was in office at the time and “it was the height of ESG and climate concerns.”

The headwinds began to lift in early 2024 when “people finally got a good understanding that this [hydrocarbons] is a core building block of society. Without it, it doesn't work.

“And by the way, it's baseload; it's energy that can run all the time, unlike wind and solar.”

Capital is starting to flow back into oil and gas, with some investors returning after a few gap years and others increasing their stakes.

“But I also think there are still a lot of LPs that would invest in oil and gas funds five years ago that will still not invest today.”

He added, “The gap is massive because we've only raised about 20% to 25% of the capital that was getting raised on average in the prior decade.”

‘Even worse’

Although there is a political tailwind in the oil and gas industry now, work on portfolio companies’ ESG efforts must continue, he added.

“Just remember how bad you all felt in 2020 when [President] Biden got elected. That’s going to happen again.

“There will be a Democrat back in the White House and there’s a good chance there’s a boomerang effect that Democrat will be even further to the left than Biden was when it comes to the environment.”

ESG “is a very emotional topic for people … and there are clearly parts of it that get into things that have nothing to do with good business. They’re just social agendas or political agendas.

“And to me, that’s the part of ESG that we have to be very careful to not get maniacal about.”

The energy industry should stick with capturing methane emissions and selling them. “That’s a revenue opportunity.”

Also, oil and gas operators are increasingly using electric and natural gas-powered frac fleets rather than diesel.

“It's a lot cheaper. You actually save money. So, there are a lot of aspects of ESG that … are just good, sound business.”

And the industry should continue to take it further, he said.

“We're not out of the proverbial weeds yet and we won't ever be. The ESG movement’s going to ebb and flow.”

Pro-energy President Trump is in the White House now, but the industry can’t rest.

“We need to keep getting better at this,” VanLoh said. “We need to do the things that make sense. We do need to do things that are good for the environment, even if they cost a little bit because the cost of inaction down the road is going to be vastly greater.

“If we just do the right things, they won't try to police us.

“If we don't do the right things, there will be a new administration that will be even worse than the last.”

Comments