John Graham, chief executive at the Canada Pension Plan Investment Board, speaks at the Canadian Chamber of Commerce's Annual General Meeting and Convention in Ottawa on Oct. 14, 2022.Sean Kilpatrick/The Canadian Press
Canada Pension Plan Investment Board is buying a 49-per-cent stake in California’s second-largest oil and gas producer, Aera Energy LLC, investing in a plan that promises to reduce the energy company’s own carbon emissions even as it keeps producing oil over the next decade.
CPPIB will partner with German-based asset manager IKAV, which reached a deal last September to buy Aera Energy from Shell PLC RYDAF and ExxonMobil Corp. XOM-N. Aera is responsible for about one-quarter of California’s oil production, and CPPIB and IKAV plan to make investments in solar power as well as carbon capture-and-sequestration technology to reduce the company’s use of natural gas, store its emissions and produce renewable power.
Financial terms were not disclosed but the total value of the deal is about US$800-million, and CPPIB will pay about US$400-million for its stake, according to a source familiar with the transaction.
The Globe and Mail is not identifying the source because they are not authorized to discuss the transaction’s terms.
CPPIB is one of several pension fund managers that, in step with large banks and other asset managers, have pledged to work with heavy producers of greenhouse gas emissions to reduce their carbon footprints, resisting pressure from environmental advocates to divest from investments in oil and gas.
The push to decarbonize the heaviest emitters is still in its early stages, but large institutional investors are starting to make notable bets. The renewables arm of asset management giant Brookfield Corp. has joined a joint venture to invest in carbon-capture-and-storage projects led by California Resources Corp., a major landowner in the state. And Brookfield is also part of a proposed takeover of Australian energy generator and retailer Origin Energy Ltd., with a plan to close its gas-fired plants and shift the company toward renewable power.
Last fall, Ontario Teachers’ Pension Plan announced plans to invest $5-billion in some of the world’s largest greenhouse gas emitters, planning to take significant stakes in those businesses and back strategies to reduce their carbon output.
Teachers’ pension plan targets high carbon-emitting companies
As a first step, Aera is expected to invest in solar energy projects to supply the considerable electricity it uses from a renewable source, backed by IKAV and CPPIB. The company then plans to curb the emissions created by burning natural gas to produce steam for wells pumping heavier oil, first by creating infrastructure to capture the carbon and store it on site, and eventually by using concentrated solar energy instead of gas to generate the steam.
At that point, Aera could use the sequestration facilities to store carbon emissions captured by other emitters, and hopes some of the solar power the company produces could eventually be contributed to the state’s energy grid.
“What’s exciting about this investment is there’s a series of ways to decarbonize this field and ultimately to create more decarbonization benefits even for the [oil] production that’s coming out of it,” said Bruce Hogg, CPPIB’s head of sustainable energy, in an interview.
The plan aims to make Aera Energy’s own operations carbon-neutral by 2033. The company will continue to produce oil to meet California’s demand as the state works to produce more clean energy from sources such as solar and wind power. But its oilfields are mature and Mr. Hogg said there is a plan to ramp down production over time.
“Near-term, it provides required oil at low cost and low emissions in the region. That comes down at the same time as renewable sources ramp up and when we also make this carbon capture available,” Mr. Hogg said.