Desjardins target starting at 3,50$Rating: Buy, Risk: Speculative, Target: C$3.50 ATH C$2.70, TSX ATH
ESG update—CCS leads the charge toward net zero emissions at Leismer
The Desjardins Takeaway: Slightly positive
Highlights
Earlier this month, ATH released its annual ESG report containing updated data for 2021. Since releasing its previous report, the company has taken meaningful steps toward reducing emissions by establishing a partnership with Entropy (a subsidiary of Advantage Energy) to set up a CCS system at its Leismer SAGD site. For context, ~86% of ATH’s GHG emissions are from steam generation at its thermal assets.
The establishment of CCS at Leismer should undoubtedly drive a step change in the company’s emissions profile. Other GHG emissions are planned to be mitigated by technology developments such as hydrogen fuel, solvent processes and renewable energy sources.
Meanwhile, ATH reiterated its previously announced GHG emissions target for a 30% reduction in Scope 1 emissions by 2025 (from 2015 baseline). Based on the latest data, the company has already achieved a 20% reduction in GHG emissions intensity.
Carbon capture to lead GHG reduction initiative. Last summer, ATH announced an MOU with Entropy to construct a CCS facility at Leismer; earlier this year, the partnership progressed to signing an LOI. Under the agreement, ATH will not need to front any capital costs; Entropy will fully fund the project, and in return, receive a share of the emissions credits generated.
While no formal timeline for the project has been outlined, the partnership is currently focused on detailed engineering, evaluating local storage and potential tie-ins to carbon trunklines, including the Oil Sands Pathways to Net Zero initiative proposal.
The company plans to take a gradual approach to CCS adoption at Leismer, with the first phase to be established at the asset’s largest steam generator. Although the project is still in its early days, it is currently on track to be the first CCS project associated with SAGD emissions, to the best of our knowledge.
Longer-term, we believe that CCS will play a significant role in meeting the company’s emissions reduction targets as it continues progressing toward net zero.
Recordable injury frequency ticks up in an otherwise positive update. While ATH demonstrated positive strides on the GHG emissions reduction front in 2021, it maintained relatively steady performance for most other key ESG performance metrics. The one notable blemish in the company’s report was safety performance, as recordable employee and contractor injury frequency hit 0.64 per 200,000 hours in 2021, the highest level since reporting began in 2015. While this data point is disappointing at face value, it is not alarming, in our view, particularly when considering ATH’s strong safety track record in recent years.