When Continental Resources announced a deal last week to take the oil company private, it joined a trend that has swept across the fossil fuel sector in recent years. With investors agitating for energy companies to lower their greenhouse gas emissions, many oil and gas drillers and utilities have sold off wells and coal plants to private companies or private equity firms, which have been eager to scoop up the industry’s dirtier assets.

Now, some environmental advocates are warning that these transactions, supposedly driven by an effort to reduce emissions and climate risks, may instead do the opposite. 

Privately held companies are exempt from many of the financial reporting rules that publicly traded companies face, and they are more insulated from the social and environmental pressures that investors have placed on the fossil fuel sector in recent years. As the impacts of climate change have worsened and more governments have acted to reduce emissions, investors have increasingly pressed oil companies to prepare for a pivot away from fossil fuels by scaling back drilling plans and investing in alternatives like renewable energy or biofuels.

The concern is that these privately held companies, facing less external pressure, might continue to run coal plants and oil wells for longer than the publicly traded concerns would have. Advocates also warn that the shift into private hands could increase the risks that the public will be left with the bill for cleanup when the operations are eventually shut and abandoned.

In the case of Continental, a large independent oil producer with headquarters in Oklahoma City, the move to go private was driven explicitly by a desire to free itself from investor restraints.

“We will play an essential role for decades to come as we do our part to help secure America’s energy independence without any encumbrances,” the company’s founder and chairman, Harold Hamm, wrote in a letter to employees, explaining his proposed purchase of the company. (The letter was disclosed in a securities filing, which privately held companies generally are not required to submit.) “Let’s go find some oil.”

In other cases it has been private equity firms, which promise large returns for investors by buying companies and placing riskier bets than traditional investment firms that have been purchasing oil fields and coal plants across the country, often through holding companies.

In recent years, BP, ExxonMobil, Shell and ConocoPhillips have all sold assets to private equity firms or privately held energy companies, taking polluting wells off their books while shifting them to less transparent owners. Utilities have made similar sales of coal- and gas-fired power plants. All told, private equity firms have invested more than $1 trillion in the energy sector, including renewable energy, since 2010, according to the Private Equity Stakeholder Project, which works to help “communities, working families, and others impacted by private equity investments.”

The trend is driven in large part by the flight of traditional investors seeking to green their portfolios.

“Public investors like mutual funds, hedge funds, university endowments, pension funds — they are actively shifting away from fossil fuels,” said Pavel Molchanov, managing director of renewable energy and clean technology at Raymond James, a financial services firm. “As public investors are divesting fossil fuels, someone’s buying it. They’re not disappearing into thin air.”

To further complicate the picture, pension funds are in some cases divesting from fossil fuels in parts of their portfolios even as they continue to invest in others, if indirectly: Public pension funds have plowed money into private equity funds because of their high yields, and many of those private funds are using that money to buy fossil fuel assets.

All of this serves to decrease transparency about who owns what. And some environmentalists say it undermines the efforts of a growing movement backed by many large investors, including some public pension funds, to use their money to exert pressure on the fossil fuel industry.

Alyssa Giachino, campaign and research director with the Private Equity Stakeholder Project, said that big oil companies have been responding to investor pressure by selling off some of their dirtier and less profitable assets. But if those sales merely shift the properties to other companies, “it hasn’t solved anything,” she said. “Exxon can make claims that they’re reducing their carbon footprint, or however they want to quantify the progress that they’re making, and the impact on the planet is the same or worse.” 

Worse, potentially, because these new private owners, without the same pressure from investors, may pay less attention to methane leaks, flaring or other emissions associated with production.

According to data compiled by the Clean Air Task Force and Ceres, two climate-focused nonprofits, the most climate-polluting oil and gas drillers, relative to their size, are overwhelmingly privately owned.

There is no comprehensive data on private equity’s investments. But the Private Equity Stakeholder Project reported that, as of last year, about 80 percent of the energy companies owned by the 10 largest firms are in fossil fuels. Molchanov said that while private equity firms have more money invested in fossil fuels than in renewables, that is because fossil fuels still dominate the world’s energy supply. Private equity has been plowing more money in renewables in recent years, he noted.

Emily Schillinger, a spokesperson for the American Investment Council, which represents private equity firms, said in a statement: “Private equity is playing an important role in the energy transition and investing more each year in renewable energy projects,” with $21.5 billion invested last year, she said. “This transition will take time and will require serious investment and commitment. This significant investment is delivering more jobs and cleaner energy for the future.”

Still, there is little doubt that private financing is playing an increasing role in fossil fuel energy, too.

In September, for example, Exxon and Shell sold Aera Energy, a joint venture that is one of the largest oil producers in California, to the German asset management firm IKAV for $4 billion. In 2020, IKAV had also bought oil and gas wells in Colorado and New Mexico from BP.

That same year, the British oil giant was in the process of selling off its Alaska operations to Hilcorp Energy, which has grown to become one of the largest oil and gas producers in the country. Hilcorp, a privately held company, also has a partnership with the Carlyle Group, a private equity firm, that has been buying oil wells across the country.

The ownership can be hard to trace. Last year, ConocoPhillips sold wells in Wyoming to a company called Contango, which is a subsidiary of Crescent Energy. But Crescent Energy is managed by KKR, a large private equity firm.

The concern for environmentalists is that each of these transactions reduces transparency for the properties and means that less attention may be paid to the environmental impacts of their operations.

“Private equity, fundamentally, is in the risk-driven enterprise,” said Clark Williams-Derry, an energy finance analyst at the Institute for Energy Economics and Financial Analysis, a research nonprofit based in Ohio that works to promote sustainable energy. “It likes risk, because risk is where you find your great returns.” 

“When a large enough share of the oil and gas system starts to become private,” he said, “then you start to amp up the kinds of risks that the industry can take, including climate risks.”

Brittany Berliner, a spokesperson for the Carlyle Group, said in a statement that her firm has chosen to invest in fossil fuel companies to promote “real emissions reductions within portfolio companies over the long term.”

IKAV did not respond to a request for comment, but in a statement that accompanied its purchase of the Exxon and Shell joint venture, it said it was committed to reducing emissions from oil and gas development and would achieve this by powering its operations with renewable energy. “In addition to our long-term goal and commitment to renewable energy, we recognize the continued need for oil and gas and for these assets to be operated safely and responsibly to facilitate a smooth and sustainable transformation of our energy supply,” Constantin von Wasserschleben, the company’s chairman, said in the statement.

According to the data compiled by the Clean Air Task Force and Ceres, which was gathered before IKAV’s most recent purchase, the company had the sixth-highest greenhouse gas emissions per barrel of oil among the country’s top 100 oil and gas producers.

Data on private equity is limited, but according to a recent report by the Private Equity Stakeholder Project and Americans for Financial Reform Education Fund, a coalition of advocacy groups, the 10 largest private equity firms oversaw at least $216 billion in energy assets as of October 2021. The largest energy investor was Brookfield Asset Management, a Canadian multinational based in Toronto with $107 billion invested in 40 fossil fuel companies and 35 renewable companies. Brookfield is also a majority owner in another investment firm, Oaktree Capital Management.

A spokesperson for Brookfield said the firm’s holdings in carbon-intensive companies are meant to help finance their transition to lowering emissions and that it is shifting its investments into renewable energy.

Seth Feaster, an energy analyst at the Institute for Energy Economics and Financial Analysis, said one of his biggest concerns with private equity’s move into the energy sector is how it is continuing to expose some public pension funds to the risks of investing in fossil fuels, even as those same funds are supposedly divesting from oil, gas and coal.

The New York State Common Retirement Fund, for example, is in the process of selling its stakes in fossil fuel companies that it determines are not prepared for a transition to clean energy. But the pension system has  10 percent of its money invested in private equity funds. Feaster and his colleagues tracked some of these private equity investments and found that the New York pension fund is a part-owner in a large Ohio coal plant that is one of the most polluting plants in the country.

“The state itself, and the legislature, is moving in a much greener direction and trying really hard to do this stuff,” Feaster said of New York. “Meanwhile, the state pension fund is supporting keeping coal plants alive in its neighboring state.”

A spokesperson for the common retirement fund declined to comment.

A major question is whether this increase in private ownership may slow a transition to cleaner energy by keeping coal plants or oil wells online when previous owners might have wound them down. Molchanov of Raymond James said this was a legitimate concern.

“Public funds are pressuring Big Oil and smaller companies to decarbonize, set net-zero targets, invest in renewables,” he said. “All of that pressure is real and it’s growing. Private equity is not as susceptible to that type of pressure.”

Privately held companies, which are often owned by individuals or families, raise some of the same concerns as private equity because they can withhold more information from financial regulators and are more insulated from investors. Hamm, the Continental chairman, alluded to this insulation in the letter to employees in which he said that oil exploration would remain central to the company’s future.

Continental did not reply to requests for comment.

All these private deals suggest that even if large public investment funds and large public oil companies grow increasingly wary of spending money on new oil and gas exploration, there may be others willing to step in as long as oil and gas demand remains strong.

In March 2021, after oil prices had returned about to where they were before Covid-19 locked down the globe, Bob Maguire, managing director and co-head of Carlyle International Energy Partners, part of the Carlyle Group, took part in an energy-sector webinar in which he declared that oil demand would remain steady or even grow for the next 15 years.

“We ask ourselves, who’s going to own that stuff,” Maguire said. Public markets appeared to be largely uninterested, he said then, leaving an opening for firms like his. “By default, private equity is kind of the only game in town. And that does suggest there are buying opportunities.”