Major Investors Warn Energy
Companies of Business Risks in Flaring Gas at Shale Oil Wells
Letter to 21 firms warns of threat to the bottom line; calls practice
“economically wasteful, environmentally damaging”
BOSTON Mar 29, 2012 With
escalating shale oil production putting the US on track to become the world’s
largest oil producer, investors are challenging an increasingly common industry
practice – burning off or ‘flaring’ associated natural gas from shale oil wells
– as environmentally damaging, economically wasteful and a threat to the
industry’s bottom line.
“We are concerned that excessive flaring, because of its impact on air quality
and climate change, poses significant risks for the companies involved, and for
the industry at large, ultimately threatening the industry’s license to
operate,” wrote three-dozen investors in a letter sent this week to 21 of the
industry’s largest shale oil producers, including Continental Resources and
The letter notes that in North Dakota alone, which produced an average of
418,000 barrels each day last year and is now the third largest source of
domestic oil production behind Texas and Alaska,
annual flaring-related emissions were equivalent to more than two million tons
of carbon dioxide, as much as adding 384,000 cars to the road.
“Shale oil holds the potential to transform the US oil industry, but its
benefits will be drastically reduced if we don’t address flaring head-on,” said
Mindy Lubber, president of Ceres, the business-investor coalition that helped
organize the letter.
“The industry’s current approach
to the issue raises serious questions as to whether that will happen, and merits
a red flag from an investment community that looks to companies for long-term
“Excessive flaring is not only environmentally damaging but also a waste of a
valuable resource,” added Karina Litvack, director, head of governance and
sustainable investment at F&C Asset Management, one of the investors sending the
“We want to encourage companies to
articulate plans for resolving this issue while shale oil production is still in
its relative infancy.”
Shale oil production is growing rapidly as a result of advances in recovery
technologies, particularly directional drilling and hydraulic fracturing, or
These technologies have opened up
previously inaccessible reserves of oil in shale formations in
Ohio, and several other states.
Goldman Sachs recently forecast
that the U.S. is poised to become the world’s top oil producer in the next five
years - a position it last occupied in 1973.
Nearly all of this increased
production would come from shale oil fracking.
The letter focused on the industry’s practice of allowing billions of cubic feet
of natural gas to be flared or vented as a byproduct of shale oil production.
The practice is only loosely regulated at the state level.
“Few if any companies appear to have well-articulated plans for managing this
growing risk,” said Steven Heim, director of social research and advocacy at
Boston Common Asset Management.
“As long-term investors, such a
short-sighted approach raises significant concerns.”
“On a lifecycle basis,” the investors’ letter continues, “emissions from oil
produced with high flaring rates may be comparable to those from
Canada’s vast oil sands region” - a
particularly high-carbon oil source.
“This could make it subject to
penalties under clean fuel standards like those adopted by California, and being
actively considered by the 13 Northeast states that are members of the Regional
Greenhouse Gas Initiative.
Such standards reduce the carbon
intensity of fuel over time and limit the market for more carbon-intensive
Shale oil fracking takes place in an environment where regulation hasn’t kept up
with booming production.
At the moment, this type of energy
production is mostly regulated by the states, many of which are relatively new
to oil and gas production and don’t yet have strong regulatory regimes in place.
The investor letter requests “information about the amount (each company) is
currently flaring, as well as details about your plans to reduce flaring at
existing wells and prevent it at future wells.”
The response deadline is May 1.
Investors also asked to meet with the companies.
The letter, addressed to the CEOs of companies with major shale oil holdings,
was sent to Anadarko, Apache, BP, Chesapeake Energy, Chevron, Continental
Resources, Devon Energy, EOG Resources, ExxonMobil, Hess, Marathon Oil, Noble
Energy, Oasis Petroleum, Occidental Petroleum, Pioneer Natural Resources, Royal
Dutch Shell, SM Energy, Statoil, Talisman Energy, Total, and Whiting Petroleum.
The investor signatories, representing $500 billion in assets, include, among
others, F&C Asset Management, Boston Common Asset Management, Local Authority
Pension Fund Forum, PaxWorld Management, Portfolio 21 Investments and
Presbyterian Church (USA).
The investor letter, with a full
listing of signatories, can be seen here
Ceres is an advocate for
Ceres mobilizes a powerful
coalition of investors, companies and public interest groups to accelerate and
expand the adoption of sustainable business practices and solutions to build a
healthy global economy.
Ceres also directs the Investor
Network on Climate Risk (INCR), a network of 100 institutional investors with
collective assets totaling more than $10 trillion.