Why inconsistent asset retirement obligation disclosures related to asset retirement obligations leave investors exposed to hidden risk

Oil and gas companies in the UK, Canada and Australia are failing to fully disclose the costs of decommissioning their fossil-fuel-related infrastructure, leaving investors with incomplete and non-comparable information. Our new report, Asset Retirement Obligations: What Lies Beneath? reveals significant variation in the quality and completeness of reporting information, despite companies in all three jurisdictions using the same international accounting standards.

Our report makes the case for improving transparency and comparability in how oil and gas companies in the UK, Canada, and Australia report the costs of decommissioning their fossil fuel infrastructure. If not, gaps in reporting expose investors to financial and regulatory risks.

Key Findings

Partial Disclosure of Decommissioning Liabilities

Carbon Tracker assessed 38 oil and gas companies’ financial statements using 15 disclosure metrics. While each metric was achievable – with at least one company providing the relevant information – overall disclosure is partial, leaving investors with incomplete and non-comparable information.  In the UK, oil and gas companies disclose on average 45% of the relevant information required to assess the full extent of asset retirement obligation liabilities, this drops to an average of 41% for Canadian companies, and just 19% for Australian companies.

Companies around the world are meant to follow the same IASB accounting standards. But the extent of the variation between jurisdictions points to a potential correlation between more observable regulatory activity in the UK and Canada (compared with Australia), and the quality of disclosure.

Recommendations

The total global cost of decommissioning existing oil and gas infrastructure is estimated to be $4 trillion. As the energy transition gathers pace, the resources to pay for clean-up will be needed sooner than planned, while production revenue will not be available as a source to cover these costs.

More regulatory scrutiny is urgently needed to improve transparency about how oil and gas companies report decommissioning and clean up liabilities in their accounts.

The report recommends that financial market regulators:

  • Prioritise transparency of decommissioning liabilities in supervision and oversight
  • Ensure investors can understand the scale, timing, and uncertainty of obligations
  • Encourage companies to adopt consistent, comprehensive reporting practices

Related research on AROs: https://carbontracker.org/tag/aro/