ConocoPhillips crossing oil sands exclusion thresholds

7 minute read

ConocoPhillips has issued $2.7 bn of debt in three tranches. The financing is to fund a full acquisition of the Surmont oil facility, a Canadian oil sands field, currently owned 50:50 between ConocoPhillips and TotalEnergies.

ConocoPhillip’s acquisition of the Surmont oil field, due to complete in late 2023, will likely increase its oil sands production, likely over the often-used 5% revenue threshold exclusion.

We draw the following conclusions. Firstly, several large investors may add ConocoPhillips to their oil sands-based exclusion list, and may subsequently seek to divest holdings. These flows could be negative for COP bond prices.

Secondly, investors subject to exclusion policies seem to have added exposure through buying the new bonds, and effectively financed the activity rendering this investment ineligible. This highlights the unfortunate ex-post timing typical in ESG assessments. Active managers should anticipate ESG factor changes earlier in their investment process.

Lastly, passive investments are particularly at risk of financing controversial behaviour, manifested here by passive ESG trackers having bought the new COP bonds. Index construction rules appear to guarantee their future sale.

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