Trillium Joins Investors in Challenging Nine Oil and Gas Companies on Hydraulic Fracturing Practices

January 21, 2011

Trillium Files Resolution with Anadarko Petroleum to Spur More Responsible “Fracking” Practices

BOSTON – Leading U.S. investors today announced they have filed shareholder resolutions with nine oil and gas companies, pressing them to disclose their plans for managing water pollution, litigation and regulatory risks that are increasingly associated with ever-expanding natural gas hydraulic fracturing operations (also known as “fracking”) in the United States.

Resolutions were filed with many of the natural gas industry’s significant players, including ExxonMobil, Chevron, Ultra Petroleum, El Paso, Cabot Oil & Gas, Southwestern Energy, Energen, Anadarko and Carrizo Oil & Gas.

“Oil and gas firms are being too vague about how they will manage the environmental challenges resulting from fracking,” said New York State Comptroller Thomas DiNapoli, whose office filed a resolution with Cabot Oil & Gas asking for a specific plan to reduce or eliminate the hazards. “The risks associated with unconventional shale gas extraction have the potential to negatively impact shareholder value. I urge companies working in this field to share their risk mitigation and management strategies with investors and the public.”

The shareholder proposals ask companies to disclose their policies and strategies for reducing environmental and financial risks from chemicals use, water impacts and a host of other issues. The resolutions also request adoption of best management practices, such as:

* recycling and reusing waste waters;

* reducing the volumes and toxicity of chemicals;

* disclosing the chemicals used in fracturing operations; and

* assuring the integrity of well cementing through pressure testing and other methods.

Use of hydraulic fracturing, which involves high-pressure injection of water, chemicals and particles deep underground to break up shale formations and release trapped natural gas, has escalated in recent years. Oil and gas companies are increasingly turning to hydraulic fracturing, or “fracking” to unlock vast, yet previously unavailable reserves as conventional natural gas supplies have dwindled. ExxonMobil, for example recently spent $36 billion to buy shale-gas company XTO Energy while Chevron purchased Atlas Energy in a $4 billion deal.

The Energy Department recently more than doubled estimates of recoverable shale reserves to 827 trillion cubic feet, the energy equivalent of 140 billion barrels of oil. The American Petroleum Institute estimates that 60 to 80 percent of natural gas wells drilled in the next decade will require hydraulic fracturing.

Environmental risks stem largely from poor well-construction practices, which can lead to drinking water contamination, well blowouts and gas leaks, and from inadequate wastewater recycling and management practices. Concerns about water contamination incidents are growing as operations expand, creating reputational and litigation liabilities for companies.

Lawsuits have been filed against four companies over alleged water contamination in Pennsylvania.  New York State adopted a temporary moratorium on new permits for fracking. Philadelphia’s city council has urged a ban on fracking in the Delaware River Basin until environmental studies have been completed, and Pittsburgh, which sits atop gas deposits, has banned fracking within city limits.

“High profile water contamination incidents, new litigation, and public protests that include calls for moratoria on natural gas permitting all suggest sizeable and rising business risks to companies and attendant threats to shareholder value,” said Richard Liroff, executive director of the Investor Environmental Health Network (IEHN), which helped coordinate the resolutions. “Shareholders need assurance that companies are candidly disclosing these risks and are adopting best management practices to minimize them.”

Investors filing the resolutions include the New York State Comptroller (Cabot Oil & Gas, Carrizo Oil & Gas), Domini Social Investments (Southwestern Energy), As You Sow (ExxonMobil and Ultra Petroleum), Trillium Asset Management (Anadarko), Miller/Howard Investments (El Paso and Energen), and The Sisters of St. Francis of Philadelphia (Chevron). Cabot Oil & Gas, Carrizo Oil & Gas, El Paso, Southwestern and Ultra Petroleum are headquartered in Houston; Energen is based in Birmingham, Alabama; Anadarko in The Woodlands, Texas; Exxon Mobil in Irving Texas, and Chevron in San Ramon, California.

According to Kristina Curtis, senior vice president at Green Century Capital Management (GCCM), which coordinated the resolutions with IEHN, “It is critical that shareholders of natural gas companies understand and address the business risks associated with this type of gas drilling. Companies and regulators must ensure this development is done in a way that protects the environment, especially our drinking water, and mitigates potential financial risks”

Though investors are concerned about the bottom line impacts of hydraulic fracturing, many also contend that cleaner-burning natural gas has a critical role to play in both increasing domestic energy supplies and reducing greenhouse gas emissions, and that unconventional methods like fracking make it possible for natural gas to fill that role.

“Natural gas can play a major role in meeting our nation’s near-term climate and energy challenges, but hydraulic fracturing must be done in a way that protects the environment and public health,” said Mindy S. Lubber, president of Ceres and director of the $9 trillion Investor Network on Climate Risk.  “Investors believe that companies can profitably minimize fracking’s water contamination, gas leaks and other material risks by adopting best management practices and by phasing out the most toxic chemicals.”

In the 2010 proxy season investors filed resolutions with a dozen oil and gas companies and, among those receiving resolutions, Williams began disclosing the measures it takes to ensure well integrity, described its recycling practices, and discussed “green completions” that reduce greenhouse gas emissions and enhance profitability. Range Resources reported its recycling measures in the Marcellus Shale that have saved approximately $200,000 per well and Hess stated it is working with its suppliers to reduce the amount and toxicity of fracking fluids used.

Trillium is currently in dialogue with Anadarko concerning the details of their proposal.

To  read the resolution Trillium filed at Anadarko, click here.

“Green Investors Pull Out of BP”

Trillium CEO Matt Patsky was quoted in Forbes.com on June 4, 2010, in an article about money managers divesting their holdings of BP after the oil spill.

“This has turned into something that is much worse than we ever could have imagined, ” Patsky said.  “Our fears were that this would turn into a bigger tragedy than the market originally thought.”

Click here to read the full article.

ExxonMobil – Greenhouse Gas Emissions Reduction

WHEREAS

The International Energy Agency warned in its 2008 World Energy Outlook: “For all the uncertainties highlighted in this report, we can be certain that the energy world will look a lot different in 2030 than it does today. The world energy system will be transformed…”

Cambridge Energy Research Associates’ (CERA) Chairman Daniel Yergin notes that “climate change and putting a price on carbon will change the dynamics of the energy marketplace.” CERA further reports that clean energy investment could surpass $7 trillion by 2030 and that “clean energy is not a bubble or passing phenomenon. Clean energy is now poised to cross the divide and move from the fringes of the energy sector to the mainstream.”

Shareholders’ repeated request for emission reduction goals reiterates ExxonMobil’s own Environmental Business Planning process, which is used “to identify key environmental drivers…, set targets in key focus areas, and identify projects and actions to achieve those targets.” (Carbon Disclosure Project 6 [CDP6], 3(a) iii)

Proponents believe ExxonMobil’s board never has sufficiently responded to shareholders in their request for an action plan and articulated goals for reducing GHG emissions from the Company’s products and operations.

ExxonMobil has set an energy efficiency target for operations of 10% by 2012, a 5,000-Megawatt cogeneration goal by 2011, and announced investments of $4 billion to reduce flaring. And the Company finally reduced direct GHGs in 2007, after a multi-year struggle with rising GHG emissions. However admirable, this progress is inadequate because the IEA estimates that, on average, only 10% of petroleum-related emissions are from industry operations.

ExxonMobil has recently announced $300 million for lithium ion battery technologies, and $100 million for carbon capture research. Yet, we believe ExxonMobil has done a poor job of articulating a cohesive business plan for dealing with climate risk and opportunity-especially regarding its products–or offered robust responses to the financial, regulatory, and technology impacts of the climate crisis.

BP, Royal Dutch Shell, ConocoPhillips, and Chevron have made newsworthy investments in renewables and low-carbon technologies to reduce emissions, and/or have begun integrating the cost of carbon into planning and investments. ConocoPhillips, BP America, and Shell have further endorsed calls for the U.S. to reduce carbon emissions by 60-80% by 2050.

We believe that ExxonMobil has not adequately assessed or disclosed the financial effects of climate regulation or industry-changing technologies. “We do not assess current and/or future financial effects because…In ExxonMobil’s view, it is impossible today to assess potential implications for shareholder value from regulatory approaches to address rising greenhouse gas concentrations.” (CDP6)

RESOLVED

Shareholders request that the Board of Directors adopt quantitative goals, based on current technologies, for reducing total greenhouse gas emissions from the Company’s products and operations; and that the Company report to shareholders by September 30, 2009, on its plans to achieve these goals.  Such a report will omit proprietary information and be prepared at reasonable cost.

Chevron – Global Environmental Standards Report

WHEREAS

The Chevron Business and Ethics Code places the highest priority on the safety of its staff, community members and the environment where it operates. Corporate Policy 530 “commits Chevron to comply with the spirit and letter of all environmental, health and safety laws and regulations, regardless of the degree of enforcement.”

Our company operates in 180 countries, including Africa, Asia and Latin America nations where environmental regimes may be less protective of human health and the environment than in North American and European countries where Chevron operates.

CEO David O’Reilly has recognized the importance of our company’s relationships with oil producing nations in Africa and Latin America. (International Petroleum Finance, 03/09/05, “Chevron Chief Believes the Surplus is Over.”)

Notwithstanding Chevron’s efforts to comply with environmental laws and regulations in developing countries, our company has repeatedly been cited for practices that allegedly have caused environmental damage and harmed the health and welfare of local communities.

• Chevron is accused of polluting land and water resources in its ongoing operations in the Niger Delta. According to observers, these persistent environmental problems have fueled civil unrest, protests against our company and a related lawsuit alleging Chevron’s complicity in security forces’ killing of two protestors. (Nigeria Ten Years On: Injustice and Violence Haunt the Oil Delta, Amnesty International, 11/03/05)

• Kazakhstan authorities have imposed a $609 million fine on the Chevron-led consortium developing the Tengiz oil field, for alleged environmental violations.

• In 2002, the Angolan government fined Chevron $2 million for pipeline oil spills that polluted beaches and damaged fishing in the Cabinda region.

• Chevron is on trial in Ecuador for widespread contamination of Amazonian land and water resources in the 1970s. (“Rain Forest Jekyll and Hyde,” The New York Times, 10/20/05)

• Unocal’s pipeline operations in Burma contributed to the deforestation of the last primary tropical rainforest on mainland Asia, a recognized ‘biodiversity hot spot.’ (“Unocal-Total Oil Pipeline in Burma Threatens Indigenous People, Animals,” Environmental News Network, 4/27/02)

Chevron’s total Environmental, Health and Safety Fines and Settlements has increased from 278 in 2002 to 699 in 2006, according to the company’s latest Corporate Responsibility Report.

Chevron’s three strategic priorities for environmental performance are: “Defining world-class standards, measuring and communicating performance and demonstrating continual performance improvement,” toward the goal of being “recognized and admired everywhere for having a record of environmental excellence.”

RESOLVED

The shareholders request that the Board prepare a report by November 2008, prepared at reasonable cost and omitting proprietary information, on the policies and procedures that guide Chevron’s assessment of host country laws and regulations with respect to their adequacy to protect human health, the environment and our company’s reputation.

SUPPORTING STATEMENT

We believe that Chevron’s record to date demonstrates a gap between its international environmental aspirations and its performance, which would be narrowed by a commitment to apply the highest environmental standards wherever the company operates. The requested report would play a role in illuminating and addressing the factors accounting for this gap.