Big Oil and Gas Companies Failing to Inform Investors of Deepwater Drilling and Climate Change Risks
New Ceres Report Finds Disclosure by Exxon, Other Industry Giants Lacking; Reporting Rules Also Need Bolstering
A new and more risk-laden energy future is taking shape as the
global thirst for fossil fuels spurs a search on frontiers once
beyond technology’s reach. A new report says investors aren’t
getting a clear picture from companies of just how deep the material risks are.
Boston, MA Aug 02, 2012 Deepwater oil drilling in all corners of the world. Hydraulic
fracturing for gas and oil across the U.S. Proliferating oil sands production in Canada.
A new and more risk-laden energy future is
taking shape as the global thirst for fossil fuels spurs a search on
frontiers once beyond technology’s reach. The environmental risks
from extracting and transporting these fuels are numerous – with the
2010 Gulf of Mexico deepwater oil spill just one example of how
things can go wrong. Climate change risks, including climate-driven
physical impacts and regulations to control carbon emissions, also
create financial exposure for oil and gas companies.
Yet gigantic flows of investment money are being directed into these efforts.
A new Ceres report says that investors supplying that money
aren’t getting a clear picture from companies of just how deep the
material risks to these investments are. Without that kind of
transparent disclosure of business risk—a requirement for corporate
reporting in U.S. Securities and Exchange Commission (SEC) filings—a
fundamental underpinning of the global economy’s health is missing.
“Sustainable Extraction? An Analysis of SEC Disclosure by Major
Oil & Gas Companies on Climate Risk and Deepwater Drilling Risk,”
tracks SEC-mandated disclosure on those risks by 10 of the world’s
largest publicly-owned oil and gas companies. It contains specific
recommendations for improving both disclosure and corporate performance in these areas.
The report’s findings are worrying: No company surveyed provided
high-quality reporting of the wide-ranging risks they face from
deepwater drilling or climate change, and how they’re managing these risks.
“Investors deserve better disclosure than this, and the SEC
requires it,” said Ceres President Mindy Lubber. “As the BP Gulf
spill, the Total gas leak in the North Sea, and several other recent
mishaps show, the risks of extracting oil and gas from remote places
by ever-more-complex methods are profoundly real, even before
considering how climate change and carbon emission mitigation can impact these projects.”
“This report should act as a ‘wake up’ call for investors in
assessing risks in this important sector,” said New York State
Comptroller Thomas P. DiNapoli, trustee of the $150 billion New York State Retirement Fund.
“The era of easy-to-access resources is over, and the risks of
underestimating the impact of climate change and the challenges of
deepwater oil and gas development are clear,” said Bennett Freeman,
senior vice president of sustainability research and policy at
Calvert Investments. “Meeting the energy needs of a growing planet
need not threaten the viability of ecosystems or the lives of the
workers who supply our oil and gas. Material climate change and
deepwater oil and gas development risks—and the steps companies are
taking to address them—are important investment considerations and should be disclosed.”
Companies evaluated in the “Sustainable Extraction?”
report were Apache, BP, Chevron, ConocoPhillips, ENI, ExxonMobil,
Marathon, Shell, Suncor and Total. The report finds that BP, ENI and
Suncor provided relatively better climate risk disclosure than
others in the report – Apache, Marathon and ExxonMobil had the
weakest disclosure – but that out of an aggregate 60 separate
climate disclosure scores just five were good, while 34 (57 percent)
were either poor or “no disclosure.”
On deepwater drilling risk disclosure BP and Total provided
relatively better disclosure, while Suncor’s disclosure was the
lowest in quality. But again, out of 50 aggregate disclosures
measured just four were good while 29 (58 percent) were either poor
or “no disclosure.” The report notes that BP’s improved deepwater
disclosure came about after its giant spill in the Gulf of Mexico.
Other forms of unconventional fossil fuel extraction also face
climate risks, particularly from ever-increasing carbon-reduction
rules such as proposed low-carbon fuel standards, specifically:
- Hydraulic fracturing for natural gas and oil creates
wide-ranging environmental risks, including proliferating
emissions of the potent greenhouse gas methane from wellheads
all across the U.S.
- Increasing oil sands production in Canada is one of the most
carbon-intensive forms of oil on a lifecycle basis, making it
especially vulnerable to a low-carbon fuel standard.
“Sustainable Extraction?” makes specific recommendations for improving disclosure and performance:
Oil and gas companies evaluated in the report provided inadequate
information to allow investors to fully gauge their exposure to
evolving climate risks and opportunities. Therefore:
- Companies need to provide more information about both risks
and opportunities presented by climate change.
- Investors should continue encouraging companies and
securities regulators to improve climate risk reporting.
- Securities regulators including the SEC and the Canadian
Securities Administrators must improve climate reporting in the
oil and gas industry by closely reviewing whether filings comply
with their recent guidance on environmental disclosure.
- Federal and state governments should communicate scientific
findings and other climate change developments to companies,
investors, and securities regulators.
Deepwater Drilling Risk:
Few companies provided good disclosure in important deepwater
drilling categories including drilling risk management, statistics
and spill response. Yet companies continue to expand deepwater
exploration and production, posing significant risks to investors
and stakeholders. Therefore:
- Companies should improve their deepwater drilling risk
disclosure, particularly of environmental, health and safety (EHS)
performance data, investment in spill prevention and response,
spill contingency plans, contractor selection and oversight, and
governance and management systems.
- Investors should renew their efforts to improve corporate
reporting on deepwater and offshore drilling risk disclosure.
- The SEC should focus on drilling-related risks, applying
existing material risk reporting requirements to improve oil and
gas companies’ disclosure.
- Federal and state governments should pursue collaborations
on offshore drilling risk management with companies, investors,
and securities regulators.
The full report can be viewed at: