EQUITY RESEARCH Jamie Kubik Shaz Merwat

October 28, 2021 ESG

Christopher Thompson Dennis Fong

Methane: A Good News ESG Story For

Canada’s Natural Gas Producers Camille Gordon

What Gets Measured, Gets Managed

Our Conclusion
With concerns over climate change remaining front and center, and while Sector:
there is always room for improvement in addressing this issue, we view Energy
Canada as one of the more advanced nations in the world in measuring and
managing methane emissions from its energy sector. We see Canadian
natural gas supplies as carrying some of the lowest methane intensity in the
global industry. With a growing push from policy makers and increasing
public pressure for limiting avoidable emissions of this potent greenhouse
gas, we believe Canadian operators can adapt to increasing stringency and
that many are already well down the path of reducing methane emissions
with explicit targets. Given natural gas is primarily comprised of methane
(>90%) and gas prices are touching multi-year highs, this is likely a win/win
scenario in many cases, and the economic incentive for increased capture
can help drive increased abatement. Moving forward, we expect the
battleground for natural gas will largely be centered around methane
intensity, and we expect Canadian operators will continue to screen
favourably.

Key Points
Canada screens as being a global leader on this topic and is likely to
continue demonstrating further improvement. The IEA’s Methane
Tracker Database demonstrates that Canada already screens as one of the
lowest methane intensity energy jurisdictions globally. Alberta and BC have
specific policies in place for targeting common sources of methane
emissions, with further step-downs expected in 2023 for equipment
installations, and have provincial targets to drive methane emissions lower.
Canadian operators also screen lean on methane emissions when
adjusting for infrastructure ownership. When comparing Canadian gas
producers to U.S. operators in dry gas producing basins such as Appalachia
and the Haynesville, taking metrics at face value often demonstrates a lower
intensity for U.S. peers. We believe the infrastructure ownership of Canadian
operators needs to be considered when comparing enterprises. Using EPA
emissions estimates, upstream infrastructure accounts for a meaningful
portion of estimated methane emissions along the natural gas value chain,
which often gets overlooked when comparing operator metrics.
Consistency and completeness of data are likely to keep improving.
Leak detection is improving across the industry and new technologies are
rapidly being introduced to better monitor emissions, some of which are
relatively cheap to implement. Perfect comparability in this area is tricky, as
completeness of data is reliant on operator practices and estimation
methods, but we expect industry practices will continue to improve.

All figures in Canadian dollars unless otherwise stated.

For required regulatory disclosures please refer to "Important Disclosures" beginning on page 14.
Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

Methane Within Global GHG Emissions

The importance of limiting methane emissions is growing. The increased scrutiny on
methane is driven by three main factors:

 It is difficult to determine with a great amount of certainty exactly how much

methane the world emits. In recent years, satellite imagery has been extremely useful
in detecting super-leaks. That’s the good news. The bad news is that even satellite
imagery has its limitations in determining the true level of emissions.
 Methane is a more potent greenhouse gas than carbon. Methane is estimated to be
the second largest contributing greenhouse gas to global warming, after carbon. As a
carbon equivalent, one tonne of emitted methane has a global warming potential (GWP)
of 25 tonnes of carbon dioxide equivalent over a 100-year time frame. However, given
the current global focus on shorter-term climate targets, i.e., 2030 (Paris) and 2050 (net-
zero), methane’s GWP is closer to 70x to 110x, as seen in the line graph in Exhibit 1.
 It is much more economical to limit methane emissions when compared to some of
the harder-to-abate sectors. This is especially the case within energy. While the
solution likely involves additional infrastructure and monitoring equipment, the
technologies are largely already developed, and many can often be commercial. The IEA
The IEA estimation likely will has put out a roadmap as to how the oil and gas sector can reduce methane emissions
be viewed as the proverbial by 75% by 2030. While this is a lofty target, it is arguably achievable. This level of
“line drawn in the sand” by expectation though is simply unrealistic when comparing the climate challenges
outsiders looking at the confronting other large emitting sectors such as steel, cement or aviation. At best case,
climate action taken by the
these latter sectors require emerging technology such as hydrogen, which is still likely
oil and gas sector.
decades away from large-scale commercial adoption.

We are seeing governments increase their efforts in tackling the risk of methane
derailing our greater climate efforts. Earlier this month, 24 additional countries (including
Canada) signed on to the EU-U.S.-led Methane Pledge, which commits to reducing methane
emissions by at least 30% by 2030 (2020 base level). In a world that increasingly looks like
one that is carbon-constrained, methane is considered low-hanging fruit.

Exhibit 1: Methane – Global Warming Potential Over Varying Time Frames, 0-100 Years

0x

20x
Global Warming Potential (CO2e)

40x

60x

80x
73x
109x
100x

120x

140x
Years 0 10 20 30 40 50 60 70 80 90 100

Note: Highlighted red circles represent 2030 (Paris) and 2050 (net-zero), from where we stand today. Sources: Environmental Defense Fund, Intergovernmental Panel on Climate
Change, Bloomberg and CIBC World Markets Inc.

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

The energy sector is estimated to be the third highest source of methane emissions on
the globe, but it also likely offers the greatest opportunity to reduce its emission when
compared to some of the other sources. The largest sources of methane emissions are
naturally occurring (bar graph in Exhibit 2). Avoidable methane emissions though should
likely be low-hanging fruit in the global warming battle. In many ways, the globe has a unique
opportunity, as what better industry to develop solutions to control methane emissions than
the one that is already highly sophisticated in extracting and transporting it! While increased
regulation and capture will come at a cost to industry, jurisdictions with a clear strategy
around carbon pricing from policy makers can also help drive adoption. Given natural gas is
primarily comprised of methane (often >90%, but compositions vary), the economic incentive
of producing and selling additional volumes can help offset the cost of capture.

Exhibit 2: Energy – Global Sources Of Methane Emissions – 2020

Methane Emissions (megatonnes)

0 20 40 60 80 100 120 140 160 180 200

Wetlands
Agriculture
Energy
Waste
Other
Biomass burning
Natural Anthropogenic Bioenergy Oil Coal Gas

Note: Energy sector emissions are for 2020 based on latest estimates from the Methane Tracker and the World Energy Outlook. Non-energy sector emissions are taken from the
Global Methane Budget for the year 2017, with natural sources relying on top-down median estimates, and other anthropogenic sources relying on bottom-up median estimates.
Source: IEA, Sources of methane emissions, IEA, Paris https://www.iea.org/data-and-statistics/charts/sources-of-methane-emissions-3

What Gets Measured, Gets Managed

BC recently announced a
75% methane reduction
target by 2030 compared to
2014 base line levels.
Canada screens favourably from a policy perspective and is well positioned to do
more. The table in Exhibit 3 highlights the major hydrocarbon-producing countries and
specific methane policies based on information from the IEA. We would note that within
Exhibit 3, Canada is the only major producing nation with policies at every level on methane
emissions control. A big challenge with methane emissions is completeness of data. In our
view, unless industry participants are actively monitoring and measuring the potential sources
of methane emissions, it is highly likely the sources of these emissions are not being reported
at the correct amount. With respect to natural gas, Alberta and BC account for approximately
98% of Western Canadian supplies. Alberta’s Directive 060 and BC’s Flaring and Venting
Reduction Guidelines have specific policies in place for industry, and also have targets for
equipment-level emission standards that should see a continued reduction through 2023. We
would note that Alberta and BC offer similar targets for methane reduction by 2025 (45%
reduction from 2014 levels) and closely aligned to Canada’s previous national target of 45%
(2012 to 2025). Recently, BC and Canada announced a 75% reduction target by 2030 from
2012/2014 levels. In the U.S., the EPA New Source Performance Standards Subpart OOOO
(2012) and OOOOa (often referred to as “Quad O” standards) offer the baseline for the
industry on new, modified or reconstructed sources post 2012. State-level policy, however, is
less consistent given there are more than 30 producing states with varying degrees of natural
gas development. While we see Canada as being well ahead of other jurisdictions globally on
this topic, our review of corporate disclosure from U.S. E&Ps highlights that its operators are

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

acutely focused there too. Even if state-level policy is not as advanced as Canadian or EPA-
level regulations, many U.S.-listed E&Ps have put forward aggressive voluntary targets that
go well beyond state or national-level policy.

Exhibit 3: Energy – IEA Methane Policies Of Selected Producing Countries, 2020

Canada

Norway
Mexico

Nigeria

Russia

Arabia

U.A.E.
China
Brazil

Saudi

U.S.
Iraq

Iran
Permitting ● ○ ● ● ● ● ● ● ● ● ● ○
requirements

Leak detection and ● ●

Prescriptive

repair

Restrictions on ● ○ ● ● ● ● ○
flaring or venting

Technology ● ● ● ● ● ● ●
standards

Enforcement ● ○ ● ● ● ● ● ● ● ●

Strategic targets ● ● ● ○
Performance based

Facility or company ○ ● ○
emissions standards

Process or ● ● ●
equipment standards

Flaring or venting ● ○ ● ● ● ● ○
standards

Taxes, fees and ● ○ ● ● ● ○

charges
Economic

Emissions trading ● ○ ●
and credits

Other financial ● ● ○
incentives

Emissions estimates ● ● ● ● ● ●
Information

● ● ● ●
based

Measurement
requirements

Reporting ● ● ● ● ● ●
requirements

Note: Full circle indicates policies at federal/national level, while a hollow circle indicates policies at a state/provincial level. Source: IEA (2021), Driving Down Methane Leaks from
the Oil and Gas Industry, IEA, Paris https://www.iea.org/reports/driving-down-methane-leaks-from-the-oil-and-gas-industry and CIBC World Markets Inc.

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

Canada and the U.S. offer some of the lowest methane intensity hydrocarbons
produced throughout the world. While methane is the primary compound within natural
gas, methane emissions are not quite equally shared between oil and natural gas production.
The IEA estimates that 40% of methane emissions come from oil production, while 60%
come from the natural gas value chain. The step graph in Exhibit 4 includes estimated
methane emissions by country from the IEA attributed to its energy sector. Country-level
estimates are also typically available from federal agencies; however, reporting differences
between jurisdictions vary considerably for what is being measured, particularly from
jurisdictions that do not have mandated measurement requirements. We see the use of IEA
data as being a more level playing field to analyze country level emissions given it has
deployed common methodology across jurisdictions. On this basis, it is clear that on a global
scale, Canada is relatively small, accounting for ~3% of total methane emissions from the
energy sector, as demonstrated in Exhibit 4. The energy sector within the U.S. emits more
than Canada; however, this is expected given its hydrocarbon production is also four times
greater than Canada.

Exhibit 4: Energy – Percentage Of Total Energy Methane Emissions, 2020

100%
1% 1% 1%
90% 1% 1% 1%
1% 1%
Percentage of Global Energy CH4 Emissions (%)

1% 1%

Australia
India
1%

Other
Venezuela

1%

Oman
Canada

1%

Indonesia
Brazil
80% 1%

Kuwait
2%

Argentina
Qatar
3%

Mexico
Uzbekistan
U.A.E.
Kazakhstan
Libya
Algeria

70% Egypt
Nigeria
Turkmenistan

Saudi Arabia
China

3%
60% 3%
Iraq

3%
United States

4%
50% 4%
Iran

5%
40% 5%

30% 7%
Russia

20%
16%
10%
19%
0%

Source: IEA (2021), Methane Tracker Database, IEA, Paris https://www.iea.org/articles/methane-tracker-database and CIBC World Markets Inc.

Canada’s methane intensity screens favourably on a unit of production basis versus

other jurisdictions. When comparing methane emissions from hydrocarbon development
(as estimated by the IEA) to the unit of hydrocarbons produced (both oil and gas), the bar
graph in Exhibit 5 highlights Canada as ranking very well, with a metric of 0.69 kt/mmboe,
representing one of the lowest-intensity jurisdictions on the planet. The U.S. also screens
favourably compared to other major hydrocarbon-producing jurisdictions, carrying a metric of
1.04 kt/mmboe. Given the IEA estimates 40% of methane emissions come from oil
production and 60% from natural gas production, we would expect jurisdictions with a greater
percentage of natural gas production to have a higher methane intensity. According to the
bp Statistical Review of World Energy 2021, Canada’s natural gas production was ~35% of
total production volumes on a boe basis (converting natural gas at 6:1) compared to the U.S.
at 47% natural gas. It therefore seems plausible that the U.S. should have a higher intensity
per boe, but we take a further look at potential emission differences from the two countries in
the following sections.

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

Exhibit 5: Global Energy Methane Emissions And Intensity (2020, IEA)

12

10

8
kt/MMBoe

Argentina
Canada

China

Algeria
Oman

Iran
Iraq
Qatar
Brazil
UAE

USA
Saudi Arabia

Kazakhstan

Egypt
Russia

Uzbekistan
Venezuela
Mexico

Indonesia

Nigeria

Turkmenistan
Kuwait

Libya
Note: methane emission intensity is calculated by taking total methane emissions per the IEA’s Methane Tracker database values for 2020 and dividing by country level production
as derived from the bp Statistical Review for 2020. Source: IEA (2021), Methane Tracker Database, IEA, Paris https://www.iea.org/articles/methane-tracker-database; bp
Statistical Review of World Energy 2021 and CIBC World Markets Inc.

A Closer Look At Canada And U.S. Methane Emissions

Across The Natural Gas Value Chain
Unconventional natural gas production accounts for a large component of methane
emissions in North America. This is not too surprising though given unconventional
sources have been a primary pursuit from industry participants for more than a decade, and
comprise the bulk of natural gas production from North America. The bar graphs in Exhibit 6
include the estimated methane emissions attached to the various components of the energy
sector when comparing the United States and Canada. Key differences from Exhibit 6 include
a higher contribution of conventional oil production in Canada versus the U.S. We see it likely
that this is owing to Canada having more mature fields with low production volumes, making
it more economically challenging to tie in the associated gas. Unconventional oil in the U.S.
contributes a larger proportion of methane emissions than Canada, which is of no surprise
given it is a dominant component of total supply. When looking specifically at unconventional
natural gas development, this accounts for approximately 44% of U.S. methane emissions,
versus Canada at 38%. Interestingly, however, natural-gas-related emissions from all
sources (including upstream and downstream contributions) are estimated to account for
67% of U.S. total methane emissions, compared to 60% from Canada. Given the different
production weightings of these countries, the percentage contribution of methane emission
coming from natural gas is relatively similar.

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

Exhibit 6: Energy – Methane Emissions By Natural Gas Industry Segment (Kt - 2020)
United States Canada
12,000 2,400

U.S. Natural Gas Related: Canada Natural Gas Related:

10,000 2,000 1,176 Kt
7,851 Kt
(67% of total) (60% of total)
8,000 1,600

6,000 1,200

4,000 800

2,000 400
Upstream Upstream
0 0

Downstream gas

Downstream oil

Unconventional gas
Onshore conventional gas

Unconventional oil
Offshore gas

Offshore oil

Onshore conventional oil

Downstream gas

Downstream oil

Unconventional gas

Unconventional oil
Offshore gas

Onshore conventional gas

Offshore oil

Onshore conventional oil

Note: Downstream segments per the IEA include emissions from refining, transmission and distribution, while upstream includes all emissions from production, gathering and
processing. Source: IEA (2021), Methane Tracker Database, IEA, Paris https://www.iea.org/articles/methane-tracker-database and CIBC World Markets Inc.

A country-level comparison of methane emission intensity from natural gas

development highlights Canada screening favourably. In trying to estimate the methane
intensity of the natural gas industry in Canada versus the U.S., we have taken estimated
methane emissions attached to natural gas development from the IEA (Exhibit 6) and
compared those to the level of natural gas production in both jurisdictions (as reported by the
bp Statistical Review of World Energy, 2021). On an upstream basis, Canada and the U.S.
screen quite comparable to one another, with Canada being slightly better, as shown in the
bar chart in Exhibit 7. Adding in the emissions of the downstream component in the U.S.
indeed adds a sizeable percentage to total U.S. emissions, which is expected as the U.S. has
additional downstream infrastructure, such as LNG facilities. Some observers have pointed
out that given the U.S. imports a healthy percentage of Canadian natural gas, these are
actually captured in U.S. downstream emissions, which is reasonable. In attempting to isolate
the estimated emissions attached to just unconventional natural gas though, we have
included natural gas volumes from U.S. dry gas plays such as Appalachia and Haynesville, in
addition to plays that are primarily targeting oil development (Bakken, Eagle Ford, Permian).
We see this inclusion of plays that are primarily oil driven as being more conservative, but
even on this basis, Canadian unconventional natural gas screens favourably from an intensity
perspective. We would concede that this is a more punitive measure for both jurisdictions
though given it excludes associated oil and liquids volumes that can be attached to
unconventional natural gas development (particularly for those plays that are primarily
targeting oil, such as the Permian and Bakken, or liquids, such as the Montney). For
Canadian operators in particular, this is a key economic consideration, given most Montney
operators are specifically targeting liquids-rich development. We take a closer look at
operator-level emissions in the following section that more closely compares true
unconventional development at an operator level.

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

Exhibit 7: Energy – Methane Emissions Intensity For Natural Gas (2020)

300

250

Intensity (tonnes of CH4/Bcf)

200

150

100

50

0
Upstream Only Upstream & Downstream Unconventional Only (Estimated)
U.S. Canada

Source: IEA (2021), Methane Tracker Database, IEA, Paris https://www.iea.org/articles/methane-tracker-database, EIA; bp Statistical
Review of World Energy 2021, CER and CIBC World Markets Inc.

Tale Of The Tape

The prolific dry gas of Appalachia screens as being the lowest-intensity basin for
natural gas, and presents a key benchmark for comparing methane intensity. We have
seen numerous reports that demonstrate Appalachian sources of natural gas
(Marcellus/Utica) as having some of the lowest methane intensity of all U.S. gas plays (bar
graph in Exhibit 8). We see this as owing to the dry gas nature of the play and its prolific
wells. Appalachia is also relatively early in its development and we expect it is therefore likely
to contain some of the newest technologies for extraction and is also subject to newer
regulations. Operators in this region are also highly focused on demonstrating low methane
intensities and have been seeking to certify its natural gas as being so through third-party
means. We therefore see it being the key benchmark for methane intensity in North America.

Exhibit 8: Energy – Methane Intensity Of U.S. Producing Basins

5%
Estimated Methane Intensity

4%

3%

2%

1%

0%
Permian Anadarko Appalachia
Kayrros Data EPA Data
Note: Methane intensity per BNEF is calculated as being the loss rate of methane versus natural gas produced. Source: BNEF and
CIBC World Markets Inc.

U.S. dry gas versus the liquids-rich Montney. Given the Montney and the Marcellus are
often touted as two of the best natural gas plays in North America (if not globally), we
compare the methane intensity of some of the largest operators within these regions in the
bar graph in Exhibit 9. We have also included Comstock from the Haynesville for comparison

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021
Certain parts of the Montney
can contain higher levels of
hydrogen sulfide in the gas
stream. Areas with a higher
sour component should
drive a greater level of
methane capture due to
strict regulations around
sour gas.
In Exhibit 9, both EQT and
Southwestern sold gathering
infrastructure in 2018, which
drives the large step change
in methane intensity.
While a common criticism of
the GHGI data is it
underestimates anomalous
events, and potentially
carries outdated emissions
intensity of the components
it is trying to measure, we
do see this data as
providing a reasonable
starting point for estimating
the impact of infrastructure
on methane emissions.
9
given the growing importance of this basin within U.S. supplies. Data in Exhibit 9 shows that
the dry gas operators in the U.S. screen lower from a methane-intensity basis. The prolific
wells and new technologies that have been applied to growth are likely the reasons, but we
also believe reduced infrastructure ownership within this group plays a part. The rate of
change in ARC, Tourmaline and Seven Generations (now ARC) over recent years
demonstrates, however, that a reduction in methane intensity is already a key corporate
objective for key Canadian operators. ARC in particular has demonstrated sizeable
improvements in its methane intensity since 2016, moving from an intensity of 4.7 kg
CO2e/boe in 2016 to 1.9 kg CO2e/boe in 2020.
Exhibit 9: Energy – Operator Methane Emission Intensity (2016-2020)
6
EQT and
5 Southwestern
Methane Intensity (kg CO2e/Boe)
disposed of
4 select GB&P
operations in *
3 2018
0
Comstock Antero EQT Range Southwestern ARC Tourmaline 7G
Haynesville Appalachia Montney
2016 2017 2018 2019 2020
* TOU’s 2019 intensity is adjusted for replacing 3,400 pneumatic devices late in 2019, eliminating an estimated 212 Kt CO2e. 2020
data for TOU is not yet available for comparison. “7G” represents Seven Generations Energy Ltd., which merged with ARC
Resources Ltd in April 2021. Source: Company reports and CIBC World Markets Inc.
Based on U.S. EPA greenhouse gas inventory (GHGI) data, we estimate upstream
processes account for the bulk of natural-gas-related methane emissions, but
gathering, boosting and processing are also estimated to be sizeable contributors. The
GHGI data in the bar chart in Exhibit 10 is an estimate of methane emissions that come from
natural gas systems in the U.S. In using 2019 data, emissions related to upstream
components amounted to roughly 60% of the total methane emissions, versus 33% owing to
midstream (transmission and storage) and 7% downstream (distribution). Within the
upstream component (left two column charts in Exhibit 10), gas processing, gathering and
boosting (i.e., compression) account for nearly half of the estimated emissions related to
upstream processes, with production processes accounting for the remaining half. For many
U.S. operators, the bulk of the processing, gathering and boosting processes sits outside of
E&Ps and is owned by third parties, while Canadian operators will most often own a sizeable
component of this infrastructure. We therefore deem a ~50% gross-up factor as a reasonable
and conservative estimate to help normalize emissions. While there could be some merit to
applying a 100% gross up to methane emissions on U.S. operators by using the data from
Exhibit 10, we have used a more conservative measure given the exact level of ownership is
not perfectly clear cut, and the GHGI data is also only an estimate.
Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

Exhibit 10: Energy – Methane Emissions From Natural Gas Systems (U.S.), 2019

Source: EPA and CIBC World Markets Inc.

Canadian operators stack up to the best of the best when normalizing for
infrastructure ownership. The bar chart in Exhibit 11 attempts to normalize methane
intensity for operators that own or do not own gathering, boosting and processing
infrastructure. On this basis, we would highlight that ARX and 7G (pre merger) screen
comparable to many U.S. operators. The level of ownership and exposure along the natural
gas value chain can obviously influence the intensity of methane emissions associated with
that natural gas. In addition, Canadian operators do have a higher level of oil handling and
tankage, which can be an increased source of potential methane emissions, but oil and
liquids often comprise more than 50% of revenues, which drives higher netbacks. While we
concede our estimation of the impact of infrastructure ownership is highly simplistic, and a
more detailed review could demonstrate otherwise, we do see infrastructure ownership as
being worthy of consideration for investors seeking exposure to low-methane-intensity natural
gas production.

Exhibit 11: Energy – Estimated Adjusted Methane Intensity, 2018-2020

5
Methane Intensity (kg CO2e/Boe)

0
Comstock Antero EQT Range Southwestern ARC Tourmaline 7G
Haynesville Appalachia Montney
Upstream Prod'n Upstream GB&P

Note: Using most recently reported sustainability disclosures, being 2019 or 2020, except for Seven Generations (7G), which is using
2018 reported data. We have included Tourmaline on an adjusted 2019 basis, giving credit for the estimated impact of pneumatic
controller replacements which occurred late in 2019. Source: Company reports and CIBC World Markets Inc.

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

Methane Emission Reduction Targets And Initiatives By Company

Canadian natural gas producers have demonstrated a favourable rate of change in recent years and are likely to continue to show better in the years
ahead. Much of the methane reduction targets being set by corporates are aligned with provincial or federal targets, and the table in Exhibit 12 highlights these
targets for select Canadian natural gas producers. In the United States, the bulk of large gas producers are joining voluntary organizations, including the Our
Nation’s Energy Future (ONE Future), to target specific methane emissions intensity reductions from the natural gas value chain. We would note that our review of
Canada and U.S. producer goals highlights many public companies as being well ahead of corporate and jurisdictional targets for methane emission intensities
already. To this end, we do consider the monitoring and measurement practices of North American operators to be quite advanced, and likely to only keep
improving from here. It should also put natural gas operators in this jurisdiction in a favourable position to adapt to increasing regulation, given their measurement
practices have already identified areas for reducing intensity.

In our view, the standards in responsibly sourced natural gas will only continue to improve, putting more pressure on the development and implementation of new
initiatives for further reduction efforts in the industry. We expect to see the producer community also continue to seek certification of natural gas with third-party
agencies, such as Equitable Origins, MiQ and Project Canary, to name a few. This is likely to lead to differentiated pricing for the least-intensive natural gas
production for purchasers, and could eventually drive a cost of capital advantage for the cleanest producers.

Exhibit 12: Canadian E&Ps – Methane Reduction Targets And Initiatives, 2021
Operator
Advantage Energy Ltd.
ARC Resources Ltd.
Methane Reduction Targets And Initiatives
Not explicitly disclosed; however, its Glacier Gas Plant recorded zero methane emissions in the company’s most recent ESG report. Advantage also tests new wells in line
directly to reduce venting during the completion process.
Has reduced its methane emissions by >50% since 2015 and is revisiting emissions reduction targets for the larger asset base with the Seven Generations acquisition. The
majority of Seven Generations Scope 1 emissions in 2019 were due to stationary combustion (>75%). Seven Generations already has minimal pneumatic controllers on its
assets, and we would estimate venting or fugitive emissions amounted to ~15% of total Scope 1 for 2018 based on historical reports. Seven Generations also received
Equitable Origin Certification in 2020.

Birchcliff Energy Ltd. Retrofit or remove all pneumatic gas devices by 2023.

Kelt Exploration Ltd. Reduce methane emissions intensity by 50% by 2025 and Kelt is actively targeting the use of instrument air in lieu of fuel gas to operate pneumatic controllers and pumps.

NuVista Energy Ltd. Targeting a 45% reduction in NuVista’s methane intensity by 2025, aligned with government initiatives and base line years of 2012 and 2014.

No explicit targets stated; however, the company has instituted a Methane Retrofit Reduction Compliance Plan, which provides a roadmap for reducing emissions from
Paramount Resources Ltd.
common sources of methane towards provincial targets, along with instituting a Leak Detection and Repair (LDAR) program covering 100% of the company’s asset base.

Peyto Exploration &

Reduce vented and flared methane emission intensity by 75% from 2016 levels by 2023.
Development Corp.

Storm Resources Ltd. Zero venting wellsite design. No gas-driven controllers. Solar chemical injection pumps.

Reduce total methane emissions by 25% from 2018 levels by 2023 (expected to be achieved in 2021). Tourmaline is also testing and installing zero-methane-emission
Tourmaline Oil Corp. technologies at its well sites. The company is testing numerous technologies that replace pneumatics with instrument air, all-electric valves and reducing surface casing vent
flow from existing or wells actively being abandoned.

Source: Company reports and CIBC World Markets Inc.

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

Appendix 1: Energy Sector Methane Emissions & Flaring

Common Sources Of Methane Emissions: The three primary sources for methane
emissions include venting, fugitive emissions and incomplete flaring. Most data sets highlight
the largest percentage is expected to be attributed to venting (routine and non-routine), with
fugitive and incomplete flaring considerably lower.

Venting
The Alberta Energy Regulator defines venting as being those processes that are routine or
non-routine. Routine venting can commonly come from pieces of equipment that emit
methane or natural gas at a specified bleed rate. Pneumatic controllers, glycol dehydrators,
compressor seals and tank venting are common sources of routine vents. Non-routine
venting includes planned (such as equipment blowdown) or unplanned venting, often as a
result of an emergency. Routine venting sources are a key area that industry is heavily
targeting for driving reductions. Replacement of pneumatic controllers, in particular, can drive
a step-change in emission intensity for producers. Installations of vapor recovery units is also
key for limiting methane emissions from tanks.

Fugitive Emissions
These emissions are surprisingly not considered to be that high in the context of global
emissions; however, super-emitting sites that go undetected can meaningfully contribute.
Frequent inspection and monitoring are key to ensuring fugitive emissions do not go
unnoticed by industry, and many within the industry utilize Leak Detection and Repair (LDAR)
programs to ensure leaks are detected and fixed within an appropriate time frame. Thermal
imaging, satellite and other remote sensing capabilities are increasingly improving the
accuracy of detecting fugitive emissions. Canadian operators have specified annual intervals
to conduct leak detection and repair, depending on the type of equipment.

Incomplete Flare
These emissions are relatively minor in the grand scheme of methane emissions. Flaring can
occur due to inadequate pipeline access, operational interruptions or a variety of other
reasons. In some circumstances, regulators are requiring methane emissions to be
incinerated versus flared to ensure complete disposal.

Flaring is a better option than venting from a CO2-equivalent perspective, but is still a
wasteful process overall. As noted above, methane emissions due to incomplete flaring of
natural gas are relatively immaterial with respect to global methane emissions; however,
flaring still represents a meaningful source of CO2 emissions. The bar and line graphs in
Exhibit 13 highlight country-level data from the bp Statistical Review of World Energy 2021. In
continuing to compare Canada to the U.S., it is of little surprise that Canada’s flaring intensity
per barrel of oil produced, and per mcf of natural gas production, has been declining for more
than a decade given it has been tightly regulated for some time. The production of crude oil
and natural gas from U.S. shale resulted in an acceleration of flared volumes over the last
decade, and from 2009 to 2019 flaring grew at a rate of 14.3% per annum, versus Canada
which declined by 3.1% per annum. In some cases, flaring is done for safety purposes, but
can also often be done to reduce the capital requirements associated with natural gas
capture, particularly for remote assets. We expect U.S. operators will continue to seek ways
to conserve flared volumes as greater regulatory and public scrutiny has become a focus in
this area, particularly in key flaring states such as North Dakota and Texas.

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

Exhibit 13: Energy – Natural Gas Flared Versus Produced (1975-2020)

Natural Gas Flared (Bcf/d)
2.00
Canada US
1.80
1.60
Natural Gas Flared (Bcf/d)

1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019
Natural Gas Production (Bcf/d) Gas Flared as a Percentage of Production (%)
100 3.5%
Canada US Canada US
90
Natural Gas Production (Bcf/d)

Percentage of Gas Flared (%)

3.0%
80
70 2.5%
60 2.0%
50
40 1.5%
30 1.0%
20
0.5%
10
0 0.0%
1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020
Crude Oil Production (MMBbl/d) Gas Flared per Barrel of Oil Produced (Mcf/Bbl)
18 0.16
Canada US Canada US
16 0.14
Gas Flared per Bbl (Mcf/Bbl)
Oil Production (MMBbl/d)

14 0.12
12
0.10
10
0.08
8
0.06
6
4 0.04
2 0.02
0 0.00
1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020
Source: bp Statistical Review of World Energy 2021 and CIBC World Markets Inc.

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

Important Disclosures
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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

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Methane: A Good News ESG Story For Canada’s Natural Gas Producers - October 28, 2021

Legal Disclaimer (Continued)

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