Shareholder activists are pointing the way to greater environmental responsibility by gas drillers.
By Sanford Lewis, Attorney
Natural gas often is touted as a bridge fuel, leading a transition to cleaner energy sources. But recently it also has a lot of attention for the extraction practice known as “hydraulic fracturing” or “fracking,” which has stirred environmental controversy and threatens to undermine its growth as an energy source. Under pressure from investors and environmentalists, some of the smaller independent energy companies have begun to improve disclosures and environmental precautions. In contrast, the energy giants Exxon Mobil and Chevron are more resistant and face resolutions in their upcoming shareholder meetings. Can they learn from the best practices of the independents?
“Hydraulic fracturing” injects high volumes of water, chemicals and particles underground to create fractures through which gas can flow for collection. The American Petroleum Institute estimates that 60 to 80 percent of natural gas wells drilled in the next decade will require fracking.
The documentary “Gasland” has helped to increase the visibility of this issue. Once you have seen it, it is hard to forget the image of a homeowner igniting natural gas emanating from his kitchen faucet and the implication that it was caused by local gas drilling operations.
Investors are particularly concerned about the lifecycle impacts of hydraulic fracturing operations. Each fracked well requires moving millions of gallons of water, chemicals and wastewater; environmental hazards posing business risks are present at every step in the process.
Investors have voiced their concerns about these business and environmental risks through an effort coordinated by the Investor Environmental Health Network and Green Century Capital Management. The investors have sought disclosure of risks and environmental precautions being taken by natural gas companies – and have had striking success at several companies. This season, shareholder proposals filed at some of the natural gas companies have been withdrawn in exchange for better disclosure of precautionary policies and practices. In other instances, because of proactive measures by companies, shareholders made the decision not to file a proposal.
Some notable corporate disclosure examples include:
- The Annual Report (Form 10-K) of Southwestern Energy contains disclosures about its efforts to use less toxic fracturing fluids.
- Talisman Energy has set a best practice example on disclosure of violations, disclosing environmental regulatory violations in Pennsylvania on a special website.
- Range Resources has described its effort to ensure effective contractor oversight in the drilling process.
- Cabot Oil & Gas discloses, prior to drilling, it tests private wells in the vicinity of its operations, providing baseline data to ensure no change in contamination levels occurs as a result of its operations, as well as accountability if it does.
In contrast, Exxon Mobil and Chevron, which have both recently acquired substantial natural gas extraction and fracturing operations, have proven least cooperative with investors and are not proactively expanding disclosure and environmental accountability on these issues. Shareholder proposals on hydraulic fracturing are pending this season at both energy giants, as well as at smaller companies Energen, Carrizo Oil & Gas and Ultra Petroleum. Exxon Mobil attempted to assert to the SEC that a few paragraphs contained in its sustainability report sufficed to address hydraulic fracturing. But the SEC agreed with the shareholder proponents, that the existing disclosures did not fulfill the request of the shareholder proposal.
No doubt concerned shareholders are having an impact on the disclosure and operational practices of natural gas extraction companies. The question remains whether during the upcoming annual meeting season, the laggards will continue to resist more proactive disclosures and precautions or use the meetings as an occasion to announce the adoption of best practice examples developed by other companies.
About Sanford Lewis
Sanford Lewis is counsel to the Investor Environmental Health Network, as well as to investing institutions and funds that have filed proposals on the potential risks and environmental impacts of natural gas extraction.
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