Activist Benjamin Dell on Oil Companies: What the Future Holds
A Conversation Between Christopher P. Skroupa, Skytop Editor-in-Chief, and Benjamin Dell, Managing Partner, Kimmeridge / November 9th, 2021
Benjamin Dell is a managing partner and founder of Kimmeridge, an energy private equity firm focused on investing in low-cost unconventional oil and gas assets in the US upstream energy sector. He is closely involved in the screening of new geological opportunities and in the negotiation and execution of investment strategies.
Mr. Dell also serves as the Chairman of Civitas Resources, a Colorado energy leader formed through the merger of Bonanza Creek Energy and Extraction Oil & Gas. After closing in November, Civitas is now Colorado’s first net-zero oil and gas producer on a scope 1 and 2 basis.
Mr. Dell is a leading voice for change in the E&P sector, advocating for reform through direct investment & advisory, focused research, and thought leadership.
Prior to founding Kimmeridge, Mr. Dell served as Co-Head of Energy Investments at AllianceBernstein and prior to that he was a Senior Equity Research Analyst for Oil and Gas E&P at Sanford Bernstein, where he was ranked first three times in the Institutional Investor Research Survey for coverage of E&Ps. Mr. Dell was also ranked for Natural Gas and for Oil Services and Equipment coverage. He was previously a member of British Petroleum’s M&A and finance group.
Mr. Dell received an undergraduate degree in Earth Sciences from St. Peter’s College, Oxford.
Christopher Skroupa: How does the ever-shifting U.S. political landscape factor into the volatility we are seeing in the O&G industry right now? Is the current administration’s stance at present favorable to industry?
Benjamin Dell: Unfortunately, energy/oil and gas supply is being politicized by both parties, with a view that there must be winners and losers. In reality we all want low cost, reliable energy with the minimum carbon footprint. To deliver this, we will need to leverage the full technical expertise of the US industrial base, with growth in renewables and reconfiguring our existing asset base. A coherent, well thought-out policy would make executing these durational investments easier, but we are unlikely to get that.
Christopher: Which countries, in your view, are leading the way in terms of the energy transition and the technology development needed to get there? How can the U.S. catch up?
Benjamin: There is little doubt the U.S. has the capital and technology to lead the energy transition. Today it is arguably behind Europe from an emissions standpoint and China from the perspective of renewable manufacturing. That being said, there is a certain benefit from being a fast follower and learning from others’ mistakes, so I believe that if the U.S. takes a market-led approach it can close the gap and lead.
Christopher: Are renewables poised to replace fossil fuel as the dominant energy source, or does the technology still have a long way to go?
Benjamin: Some hold the view that the energy transition is entirely predicated upon moving away from oil and gas and other traditional fuel sources – toward more renewable energy and battery power. From my perspective, the transition – especially in the earliest stages, where we are now – should take the form of a shift toward a net-zero energy system. The world is still reliant on fossil fuels and we don’t yet have the infrastructure to support a more than gradual transition away from that energy source. Instead, we need to use the tools we already have to get to net zero today.
Christopher: What’s your vision for the oil & gas company of the future?
Benjamin: The future of the E&P industry will depend upon companies’ willingness to critically examine whether their business models are viable over the long-term. E&Ps will need to embrace a new business model focused on:
Returning capital to shareholders;
Lowering reinvestment rates;
Reducing absolute debt;
Aligning management compensation with the interests of shareholders
Establishing credible – and bold – environmental targets aligned with the Paris Agreement.
On the point of environmental impact, they will need to be net zero on scope 1 and scope 2 emissions in the very near future, not in 20 years. And if anyone argues it can’t be done, they can look no further than Civitas Resources, the largest pure-play energy producer in Colorado’s DJ Basin and the state’s first carbon neutral O&G platform on scope 1 and scope 2 basis. E&P companies have the means to get there, but they need to act fast or risk being rendered unprepared and uninvestable.
Christopher: What does the path to net zero look like for E&Ps? How can they get there faster than 2040 or 2050?
Benjamin: As a direct operator, Kimmeridge has been able to reduce emissions in its own operations through the deployment of various technologies and strategies. Additionally, we’re making multi-year investments in offset agreements and looking to nature-based credits as the ideal carbon abatement strategy. At Civitas, which was net zero on the day it began operations, we’ve taken a similar tack. In addition to best in class operational protocols, the new platform has effectively put a price on carbon internally throughout the organization. This will incentivize employees to think about emissions reductions across operations and will accelerate the reductions that the company is already making.
Christopher: How has the fluctuating commodity price changed the incentive to follow this model?
Benjamin: Though higher commodity prices will test the capital discipline of management in the sector, we can’t allow it to reduce the sense of urgency around addressing the underlying issues at play. In fact, the move in commodity pricing should not change the dynamic at all. The strategy embedded in the new E&P model is about reducing cost, improving margins and returning cash to shareholders, while focusing on the environmental impact of capital allocation. All of these objectives hold no matter the short term price of the commodity.