OCDE - Due diligence essentials for the oil and gas sector de 2026

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DUE DILIGENCE ESSENTIALS FOR THE OIL AND GAS SECTOR © OECD 2026

Oil and gas is a critical input for virtually all other sectors of the global economy, accounting for nearly one third of the world’s total energy supply and underpinning global transportation, heating, industrial production and the manufacture of consumer goods. The sector’s complex, multi-tiered value chain spans exploration and production, transportation and storage, and refining and distribution. The sector’s operations are associated with significant environmental, social and governance risks, including greenhouse gas emissions, land degradation, water pollution, exposure to hazardous materials, occupational health and safety risks, risks of community displacement, corruption, illicit trade and links to conflict. This case study explores the most salient impacts related to the oil and gas sector, and challenges and opportunities in addressing them in line with international standards on responsible business conduct. It is targeted at companies in oil and gas value chains who are seeking to understand their exposure to related risks, and also for policymakers and stakeholders seeking to better understand opportunities for promoting effective due diligence in the sector. Due diligence essentials for the oil and gas sector2  DUE DILIGENCE ESSENTIALS FOR THE OIL AND GAS SECTOR © OECD 2026

Key characteristics of the oil and gas sector and its value chain Oil and gas serves as a critical input for various industrial processes, from manufac turing to chemical production, underpinning many other sectors in the global economy. Oil accounts for ne arly one-third of the global energy supply, with approximately two-thirds used to power global transportat ion through fuels like gasoline, diesel and kerosene (EIA, 2024 [1]; 2016 [2]). Petroleum-based products provide energy for heating and are essential for industrial processes and the production of consumer goods, includ ing plastics. Similarly, natural gas has become increasingly important in electricity generation, heating and as an energy source for industrial applications. It is also used in the production of fertilisers, pharmaceuticals and plastics.

heating and are essential for industrial processes and the production of consumer goods, includ ing plastics. Similarly, natural gas has become increasingly important in electricity generation, heating and as an energy source for industrial applications. It is also used in the production of fertilisers, pharmaceuticals and plastics. Market landscape While virtually all countries are consumers of oil and gas-based products, only a few countries are major producers of oil and gas. OECD countries and non-OECD Middle Eastern countries each account for circa one-third of global crude oil production, followed by a significant margin by no n-OECD countries from Europe and Eurasia. OECD countries also currently lead global natural gas production, particularly driven by a recent surge in North American shale production. Middle Eastern countries, whi le rapidly increasing their global stake in natural gas production in recent decades, supply circa 16% of global natural gas; significantly below their influence in global crude oil production (IEA, 2021 [3]). The oil and gas sector is dominated by national oil companies (NOCs), som e of which operate internationally (sometimes separately referred to as INOCs).1 NOCs collectively control over half of global oil and gas production and close to 60% of oil and gas reserves. They may operate independently or form joint ventures with private companies to access technology and capital. The structure of the industry varies regionally, with NOCs prevalent in various countries of the Middle East, a mi x of large integrated oil 3

DUE DILIGENCE ESSENTIALS FOR THE OIL AND GAS SECTOR © OECD 2026

companies thriving in North America and Europe and significant foreign investment in dev eloping regions like Africa, although access to capital may be limited especially for SMEs. Independent producers and international oil and gas majors make up the remaining share of t he oil and gas industry, as well as various smaller service companies such as equipme nt providers and logistics firms, as well as trading entities. Vertical integration is a defining characteris tic of many companies in the oil and gas industry. However, not all firms are vertically integrated; many SMEs specialise in specific value

gas industry, as well as various smaller service companies such as equipme nt providers and logistics firms, as well as trading entities. Vertical integration is a defining characteris tic of many companies in the oil and gas industry. However, not all firms are vertically integrated; many SMEs specialise in specific value chain segments such as drilling, seismic surveys, equipment manufacturing or l ogistics. The presence of SME activity varies depending on the segment of the supply chain and the regulatory environment. Home to the world’s major NOCs, the Organisation of the Petroleum Exporting Countries (OPEC) plays a critical role in shaping the dynamics of the global oil and gas market. As a consortium of oil-producing nations,2 OPEC influences market stability, supply levels and pricing by controlling ne arly 80% of the world’s proven oil reserves and 40% of global production (EIA, 2023[4]). OPEC adjusts output to respond to shifts in demand, economic conditions and geopolitical events. It expanded its geographic influence in 2016 by signing an agreement with ten other oil-producing countries to create what i s known as OPEC+ 3

(EIA, 2023[4]; OPEC, 2024[5]).

Oil and gas products are typically sold either through direct contracts, inc luding long-term supply agreements or the “spot market”, or on exchanges such as the New York Mercantile Exchange (NYMEX), the Intercontinental Exchange (ICE) and the Dubai Mercantile Exchange (DME). Historically, the crude oil market has been dominated by long-term supply agreements, which account for approximately two-thirds of the market and often span between 10 to 20 years (Dunn and Holloway, 2012 [6]). Refineries typically procure their “base load” via long-term supply contracts for stability and price certainty while NOCs tend to sell their crude directly to refineries or other end users. For natural gas an d liquefied natural gas (LNG), despite spot and short-term transactions gaining prominence in recent years, a substantial portion of trade still occurs under long-term agreements (Ason, 2022 [7]). In LNG markets, capital-intensive infrastructure

sell their crude directly to refineries or other end users. For natural gas an d liquefied natural gas (LNG), despite spot and short-term transactions gaining prominence in recent years, a substantial portion of trade still occurs under long-term agreements (Ason, 2022 [7]). In LNG markets, capital-intensive infrastructure often necessitates stable, predictable revenue flows through longterm contracts. “Long -term” refers to contract durations of over four years, short-term to contract durations of under four y ears, and spot t o delivery within three months from the transaction date. Certain geographical hubs in Europe and Asia occupy a dominant position in global commodities trade. Trade finance provided by banks plays a critical role in facilitating the trading of oi l and gas. Commodities trading is about buying and selling oil and gas, while trade finance provides the funding and risk management tools that enable those trades to happen. There exist various structures under which sel lers and buyers of crude oil and gas products conduct trade finance, including l etters of credit, pre-payment, pre-shipment and pre-export financing, repurchase agreements and securitised finance. These structures may help manage risks for market participants while enabling substantiall y larger volumes of oil and gas deals. Providers of trade finance may thus represent critical control points 4 in the oil and gas value chain, given that borrowers could be incentivised to comply with banks’ requests for information and as the total number of active lenders remains relatively small. Value chain characteristics The oil and gas value chain involves a series of interconnected phases, which can be separated into three segments: upstream, midstream and downstream (see Figure 1). The upstream segment, which accounts for nearly two in three industry jobs (IEA, 2023 [8]), involves exploration and production of oil and gas. As a first step, companies acquire an explorati on license from host governments. The exploration phase includes geological analyses and tests to locate potential drilling sites. If a viable location is found, the development phase begins, including drill ing and well construction. Production constitutes the long-term extraction process that allows companies to bring oil and gas to the

host governments. The exploration phase includes geological analyses and tests to locate potential drilling sites. If a viable location is found, the development phase begins, including drill ing and well construction. Production constitutes the long-term extraction process that allows companies to bring oil and gas to the surface. This process is based on conventional methods such as vertical drilli ng, pumping and4  DUE DILIGENCE ESSENTIALS FOR THE OIL AND GAS SECTOR © OECD 2026

compression, as well as unconventional methods such as hydraulic fracturing (aka “ fracking”), and horizontal drilling. The latter is used to access gas in more complex, les s porous and deeper geological formations. Figure 1. Simplified oil and gas value chain

Source: Freely compiled after Inkpen and Moffett (2011 [9]), The Global Oil & Gas Industry: Management, Strategy and Finance,

https://www.academia.edu/42323981/The_Global_Oil_and_Gas_Industry_Management_Strategy_and_Finance. The midstream segment typically refers to the transportation and storage of oil and gas. Oil transport by ship is the prevalent means of transporting, accounting for approximately two-thirds o f oil produced globally, and 17% of natural gas (Clarksons, 2022 [10]). Pipelines are the dominant mode of transport for natural gas and also carry a significant share of crude oil and refined pro ducts, particularly over land and for shorter distances where fixed infrastructure is economically viable. Where pipeli nes are unfeasible, LNG may offer a flexible alternative. The more complex LNG value chain includes liquefa ction, cooling, transport and storage on LNG tankers and terminals, and ultimately re-gasificatio n. Most natural gas and regasified LNG are transported to wholesalers and municipal companies, where they ar e stored and ultimately used for electricity and heat generation or consumption by end customers (Federal Ministry of Labour and Social Affairs, 2023 [11]). Storage facilities accordingly play a crucial role in managing supply and demand. The downstream segment typically refers to the refining and distribution of oil and gas. Approximately 87%

ultimately used for electricity and heat generation or consumption by end customers (Federal Ministry of Labour and Social Affairs, 2023 [11]). Storage facilities accordingly play a crucial role in managing supply and demand. The downstream segment typically refers to the refining and distribution of oil and gas. Approximately 87% of the global oil supply is refined through distillation, fracking, and other chemical treatments in circa 825 active refineries across the world (Offshore Technology, 2024[12]). These range from “teapot” refineries built close to oil fields to produce small volumes of light blend-stocks for local demand, to the megarefineries which process over 1 million barrels of oil per day (Offshore Technology, 2024[12]). Nearly half of global refining capacity is located in OECD countries (IEA, 2022 [13]). Natural gas processing facilities are typically co-located with extraction operations. Refining processes are tailored to the specific grades of crude oil that each refinery is designed to handle. Often, refineries process feedstocks composed of blends of different crudes, reflecting the diversity of available supplies. As a result, refineries may differ from one another in response to factors such as the geographic and logistical accessibility of crude oil supplies, the specifi c refining technologies and processes they employ, and the particular market for refined products they aim to serve. They do not typically produce enduser products directly, but rather “blend -stocks” that are further processed into 5

DUE DILIGENCE ESSENTIALS FOR THE OIL AND GAS SECTOR © OECD 2026

consumer products such as gasoline and diesel. Once refined, the distribution phase begins, ensuring that oil and gas products are transported from refineries to storage terminals, retail outlets and industrial customers. Blending may take place at various stages of the oil and gas supply chain: in storag e facilities and terminals, at loading and unloading facilities and on barges and vessels. The role of intermediary actors Intermediary actors such as commodity traders, equipment suppliers, and logistics firms play cri tical roles

customers. Blending may take place at various stages of the oil and gas supply chain: in storag e facilities and terminals, at loading and unloading facilities and on barges and vessels. The role of intermediary actors Intermediary actors such as commodity traders, equipment suppliers, and logistics firms play cri tical roles in facilitating the flow of goods and services across the value chain, from extraction to refining, distribution, and delivery to end users. Commodity traders serve as intermediaries between producers and consumers, facilitating the flow of crude oil, refined products and natural gas across borders and into markets. They operate across all segments of the supply chain (see Figure 1). In the ups tream phase, they are involved in procuring crude oil from NOCs and independent producers. At the refining stage, tr aders tend to work closely with refineries to ensure that the right grades of crude are processed to meet market d emands. In the downstream phase, traders facilitate the distribution of refined products to global markets, handling transportation logistics and retail distribution. Equipment suppliers play a role throughout the oil and gas value chain by providing the essential hardware and technological solutions needed for exploration, production, transportation, refining and processing. These suppliers often work closely with oil and gas companies to design, engineer and implement tailored solutions that meet the specific operational challenges of each project. Their cont ributions to the oil and gas value chain go handin-hand with services provided by logistics firms, aiding the physical movement of oil and gas products and managing pipelines, shipping routes and terminals. Salient impacts associated with the sector Environmental impacts Contribution to climate change The production and consumption of oil and gas generate significant levels of greenhouse g as (GHG) emissions, therefore significantly contributing to global warming and the intensification of climate change.5 Emissions in the oil and gas sector, including particularly carbon dioxide (CO₂), methane and nitrous oxide, may occur at various stages of the supply chain: during production, processing, transportat ion and use. Scope 3 emissions, particularly the combustion of oil and gas by end-use consumers, account for 80%

Emissions in the oil and gas sector, including particularly carbon dioxide (CO₂), methane and nitrous oxide, may occur at various stages of the supply chain: during production, processing, transportat ion and use. Scope 3 emissions, particularly the combustion of oil and gas by end-use consumers, account for 80% and 85% of the life cycle emissions of oil and gas, respectively (IEA, 2023[8]). Methane emissions from leaks, venting and flaring also significantly contribute to the sector’s foo tprint and may be especially associated with unconventional oil and gas extraction methods, including shale gas (IEA, 2024 [14]). According to a 2023 report by the World Benchmarking Alliance (WBA, 2023[15]), the largest 81 oil and gas companies have made little progress in turning away from hydrocarbons and towards ali gnment with internationally agreed global temperature goals. Notably, the report finds that none of the assessed oil and gas companies with ex traction activities show a “significant reduction” in production before 2030 (WBA, 2023[15]). Land degradation, biodiversity loss and habitat disruption Oil and gas production can negatively impact ecosystems and biodiversity, particularly during exploration, extraction, and transportation. Infrastructure development such as drilling sites, pi pelines, and roads can lead to habitat loss and fragmentation, disrupting wildlife and reducing biodiversity (IPIECA, 2021[16]). This6  DUE DILIGENCE ESSENTIALS FOR THE OIL AND GAS SECTOR © OECD 2026

may be especially problematic in sensitive environments such as forests, wetla nds and coastal areas, where land clearing can isolate populations, reduce genetic diversity and increase ex tinction risks for endangered species. Moreover, noise, vibration and light pollution from drilling operations can disturb wildlife behaviour, breeding and feeding (Rutherford et al., 2023 [17]). Offshore oil and gas operations can damage marine ecosystems, including coral reefs and seafloor habitats, and nois e pollution from drilling may affect marine mammals, interfering with their communication and navigation systems. Water use and pollution

wildlife behaviour, breeding and feeding (Rutherford et al., 2023 [17]). Offshore oil and gas operations can damage marine ecosystems, including coral reefs and seafloor habitats, and nois e pollution from drilling may affect marine mammals, interfering with their communication and navigation systems. Water use and pollution Oil and gas extraction and processing, particularly hydraulic fracturing, are highly water-intensive activities (Redmond, Watters and Grande, 2019 [18]). Hydraulic fracturing generates vast quantities of wastewater that, if mismanaged, can contaminate local water sources and limit access to water resources for local communities, especially in high water stress areas. This contamination may occur through the i njection of drilling fluids or from flowback, where pollutants, including chemicals and hydrocarbons, can seep into groundwater. Polluted water can severely harm aquatic ecosystems and human health. Addit ionally, accidental spills or leaks further exacerbate risks to nearby communities and wildlife. PFAS or “forever chemicals” Perand polyfluoroalkyl substances, more commonly known as PFAS or “forever chemicals ”, pose significant environmental and health risks when used in hydraulic fracturing proces ses. These synthetic chemicals are highly resistant to degradation, meaning they persist in the environment and can contaminate soil and water over long periods. PFAS can leach into groundwater or surface wat er, contaminating drinking supplies and posing a serious health hazard to nearby comm unities. Some jurisdictions are already considering new rules that would require oil and gas companies to disclose the chemicals used in operations and prohibit the use of PFAS after contamination concerns (Fisher, 2024[19]). Induced seismicity The injection of wastewater into deep geological formations, a common practice in hydraulic fracturing has been shown to be able to trigger seismic events (Folger and Tiemann, 2016 [20]; U.S. Geological Survey, n.d.[21]). High-pressure injection may alter subsurface pressure and stress conditions, potenti ally leading to fault slippage. The resulting increase in seismic activity may pose sa fety risks to nearby communities,

n.d.[21]). High-pressure injection may alter subsurface pressure and stress conditions, potenti ally leading to fault slippage. The resulting increase in seismic activity may pose sa fety risks to nearby communities, as even minor earthquakes can damage infrastructure. For example, some reports already posit significant surges in local earthquake activity over the last decade associated with nearby hy draulic fracturing wells (Ries et al., 2020[22]). Social impacts Community displacement and loss of livelihoods Community displacement and the loss of livelihoods may be significant ri sks in regions where extraction, infrastructure development and processing activities occur, particularly in areas with weak governance, high population density and economies dependent on subsistence activities (ACCORD, 2024 [23]). Large-scale land acquisitions for extraction sites, pipelines, refineries, stora ge facilities and export terminals may result in physical and economic displacement. In regions with unclea r land tenure systems or inadequate legal protections, forced evictions frequently might occur, leaving affec ted families without fair compensation or adequate relocation support. Environmental degradation may further exacerbate these challenges. Impacts of the oil and gas industry may disproportionally affect Indigenous Peopl es (ACCORD, 2021 [24]). This may include the encroachment on ancestral lands and loss of land access, the disruption of traditional 7

DUE DILIGENCE ESSENTIALS FOR THE OIL AND GAS SECTOR © OECD 2026

practices, the loss of sacred sites, forced relocation, and unequal benefit shar ing (UCLA IoES, 2020 [25]). Many Indigenous communities reside in regions rich in natural resources, yet their involvement in decisions related to the development of those resources may be frequently overlooked, highlighting the importance of Free, Prior, and Informed Consent (FPIC). Exposure to Naturally Occurring Radioactive Materials (NORM) and heavy metals Oil and gas extraction can lead to significant concentrations of Naturally Occ urring Radioactive Materials (NORM) within produced water, sludge, and scale that forms on equipment. posing poten tial hazards to

Exposure to Naturally Occurring Radioactive Materials (NORM) and heavy metals Oil and gas extraction can lead to significant concentrations of Naturally Occ urring Radioactive Materials (NORM) within produced water, sludge, and scale that forms on equipment. posing poten tial hazards to the environment and human health. The risk of NORM exposure may be elevated in un conventional production such as hydraulic fracturing. These unconventional methods typically involve extensive fracturing of rock formations, which increases the likelihood of bringing radioa ctive isotopes (e.g. radium, thorium, and uranium) to the surface. High exposure risks to NORM are particularly prevalent in areas with high levels of shale gas extraction, like the Marcellus Shale in Pennsylvania and parts of Texas in t he United States (Cowie et al., 2012 [26]). Extraction and refining processes can also release heavy metals which occur naturally in crude oil and associated geological formations (e.g. lead, arsenic, mercury, cadmium, and chromium). These metals may be released into soil and waterways through produced water discharge, drilling muds, and refinery effluents, with potentially serious consequences for surrounding ecosystems and communities, including adverse health impacts such as elevated risk of cancer and some diseases (UNEP, 2011[27]) (Singha and Deka, 2024[28]). Links to armed conflict The oil and gas sector may be associated with particular challenges when operatin g in conflict-affected and high-risk areas (CAHRAs). In certain conflict-affected regions, non-state armed groups have seized control of oil production and distribution infrastructure, using revenues to finance their operations. In such contexts, companies operating in or near conflict zones or sourcing from inter mediaries active in these markets, may face heightened risks of contributing to the financing of armed groups, with significant implications under international humanitarian law and applicable sanctions regimes . Oil and gas companies may also contribute to, or be associated with, conflicts within or between communities and human rights abuses, including by exacerbating disputes over natural resource access (UNICEF, 2015[29];

implications under international humanitarian law and applicable sanctions regimes . Oil and gas companies may also contribute to, or be associated with, conflicts within or between communities and human rights abuses, including by exacerbating disputes over natural resource access (UNICEF, 2015[29]; OECD, 2016[30]). For instance, oilfield discoveries have been associated with a heightened incidence of internal armed conflict, especially for countries previously experiencing armed conflict (Lei and Michaels, 2014[31]). Conflict can also be related to the use of private security companies hired by oil and gas companies to guard their perimeter and facilities (UNEP Finance Initiative, 2014 [32]). Job losses related to the transition to a low-carbon economy The oil and gas industry employs an estimated 12 million people globally , with employment heavily concentrated geographically and primarily located in the sector’s upstream segm ent (IEA, 2023[33]). If oil and gas production phases down in the coming decades, lowand middle-income c ountries reliant on these industries may face substantial job and revenue losses, potentially affecting public spending on social services and infrastructure. Key considerations for a just energy transition include the relatively older (and ageing) workforce compared to renewable energy, diverse collective bargaining structures and the high incidence of contract-based employment (OECD, 2026 [34]; World Resources Institute, 2023 [35]). In a well-below 2°C scenario, global fossil fuel employment is projected to fall by 75% by 2050, with job losses predominantly in oil, gas and coal, though regional and national impacts ma y vary significantly (Pai et al., 2021[36]).8  DUE DILIGENCE ESSENTIALS FOR THE OIL AND GAS SECTOR © OECD 2026

Governance impacts Corruption and bribery The oil and gas se ctor’s lucrative nature may make it susceptible to corruption, including brib ery, embezzlement and undue political influence. Companies seeking access to oil and gas reserves may engage in bribery during the licensing process to secure favourable terms or expedite bureau cratic

Governance impacts Corruption and bribery The oil and gas se ctor’s lucrative nature may make it susceptible to corruption, including brib ery, embezzlement and undue political influence. Companies seeking access to oil and gas reserves may engage in bribery during the licensing process to secure favourable terms or expedite bureau cratic processes, undermining fair competition. Similarly, companies may bypass environme ntal regulations through bribery. Key drivers of corruption can include weak governance frameworks, discretionary po wer in decision ma king, revolving doors, campaign contributions and a lack of transparency regarding beneficial ownership (OECD, 2016[37]). The sector is also particularly vulnerable to abuse because of the high value of resources, the central role of the state, and the involvement of political elites, creating corruption risks ac ross the entire extractive value chain, including licensing, revenue management and state-owned enterprises ( EITI, n.d. [38]). Similarly, analysis of the “resource curse” emphasises that oil wealth is assoc iated with rent -seeking, authoritarian tendencies and weak accountability, as governments become less dependent on citizens and more prone to using resource revenues to maintain power (NRGI, 2015 [39]). Illicit trade and smuggling Illicit trade and smuggling pose significant risks to the oil and gas sec tor, potentially impacting economic, social and security dimensions. Fuel theft and smuggling may be particularly prevalent in regions with subsidised fuel prices or cross-border price disparities, leading to subs tantial revenue losses for governments and companies. Pipeline theft and vandalism, often orchestrated by crimi nal networks, not only result in financial losses but also create severe environmental and safety hazards, such as spills and explosions. Illegally obtained oil and gas may enter black markets and fund cri minal organisations and armed groups, particularly in CAHRAs. State-backed sanctions evasion in the oil and gas sector increasingly operates through co-ordinated, sovereign-supported networks (The Maritime Hub, 2025 [40]). In many cases, these systems are actively enabled or tolerated by states themselves through state-linked shipping, alternative payme nt channels,

armed groups, particularly in CAHRAs. State-backed sanctions evasion in the oil and gas sector increasingly operates through co-ordinated, sovereign-supported networks (The Maritime Hub, 2025 [40]). In many cases, these systems are actively enabled or tolerated by states themselves through state-linked shipping, alternative payme nt channels, and co-operation with third countries. This allows sanctioned producers to sustai n export revenues and embed evasion practices into the structure of the global energy trade. Key considerations for due diligence Challenges Varying levels of supplier visibility and traceability along the value chain Supplier visibility along the oil and gas supply chain may strongly depen d on the segment of and position in the supply chain as well as the chosen procurement method. For instance, the sector’s prevalence of mediumand l ong-term contracts between mutually known parties may aid supplier visibility and enable proactive due diligence efforts, including environmental, social and governance supplier assessments and continuous engagement. However, the industry’s increasing reliance on spot markets may undermine such visibility, highlighting the need for enhanced industry