Tar Sands Shareholder Proposals Pick Up Steam in 2010
In a show of how seriously investors, environmentalists and advocates are looking at the environmental costs and financial uncertainties associated with tar sands, support has grown dramatically for shareholder resolutions filed at major oil companies. This movement parallels increased activity on the part of more than 50 nongovernmental organizations working to slow down the expansion of tar sands projects.
Extracting oil from tar sands, also known as oil sands, is an energy-intensive and damaging process, whereby oil that is mixed with sand, clay, other mineral sediments and water is separated often using hot or warm water. The oil is either extracted using strip mining or using deep wells that often require high pressure steam to encourage oil flow. The processing has outsized impacts on air, land and water systems, and contributes higher lifecycle greenhouse gas emissions than conventional oil.
Trillium Asset Management Corporation (“Trillium”) has filed resolutions at ExxonMobil and ConocoPhilips, and signed letters of support for two resolutions at Shell and BP.
ConocoPhilips
In 2008 and 2009, Trillium acted as the “lead filer”* of a resolution calling for a report on the environmental and social impacts of the company’s oil sands extraction. In both years, support reached about 30%, which is quite high for a shareholder resolution addressing an environmental issue. Last year, there were nine co-filers; this year, the California State Teachers Retirement System (CalSTRS) has stepped up to act as lead filer, and additional 10 co-filers have signed on.
ExxonMobil
Trillium has signed on as a co-filer on this first-year resolution, sponsored by Green Century Capital Management, along with 8 additional co-filers. The proposal calls for a report “discussing possible long term risks to the company’s finances and operations posed by the environmental, social and economic challenges associated with the oil sands”. The resolution can be found here.
Shell
Trillium has signed a letter of support for a resolution co-filed by two British shareholders, The Ecumenical Committee for Corporate Responsibility and FairPensions UK, asking Shell to produce a report detailing how a decision on oil sands projects took into account “future carbon prices, oil price volatility, demand for oil, anticipated regulation of greenhouse gas emissions and legal and reputational risks arising from local environmental damage and impairment of traditional livelihoods.”
BP
Trillium supports a resolution filed at BP that calls for a report detailing BPs decisions to press forward with tar sands development, specifically the Sunrise project. Trillium has been pressuring BP for years, as one of a group of signatories of a letter presented at the 2008 annual stockholder’s meeting expressing disappointment in the companies move into tar sands.
Investor briefings in support of the resolutions can be found at http://incr.com/resolutions.
Related Material:
“Tar Sands Development Stickier Than Anticipated,” Investing For A Better World, Spring 2008.
“ConocoPhillips Shareholders Show Strong Support for Tar Sands Proposal,” May 2009.
“Investors Decry BP’s Entry Into Tar Sands,” April 2008.
* “Lead filers,” as the phrase implies, take a leadership role in drafting shareholder proposals and negotiating dialogue with company management to identify conditions that might lead to a withdrawal. Co-filing shareholders typically take a less active role in the process.
Tar Sands Development Stickier Than Anticipated
In a rational global economy not entirely driven by short-term profit maximization, the collective body politic of all nations would have applied the precautionary principal to the threat of climate change twenty years ago. We’d now be celebrating the fruits of two decades of aggressive efficiency measures, phased down fossil fuel use, and the mass distribution of renewable energy technologies.
Instead, we have the tar sands.
Record oil prices and declining access to the oil and gas resources of nations such as Russia, Saudi Arabia, Sudan and Venezuela has led to a rush to develop Canada’s tar sands deposits. CIBC World Markets chief economist Jeffrey Rubin estimates that of the world’s oil properties, the Alberta oil sands represent 60% of the resources where energy companies can invest.1
Every major Western oil and gas producer is either in the game already or is making plans to be – Chevron, ConocoPhillips, Imperial Oil (ExxonMobil‘s Canadian subsidiary), Suncor, Shell, BP, Statoil, Marathon, Devon, Murphy Oil, TotalFina, and PetroCanada.
Tar sands are just what the moniker evokes (which is probably why the industry prefers the less gooey-sounding “oil sands”) – an oil known as bitumen embedded in earth and sand, most of it deeply buried. As one might imagine, it takes a lot of resources to squeeze out and refine bitumen into usable product. Bitumen from oil sands is “one of the most environmentally costly sources of transport fuel in the world”2 – as the mining, upgrading, and refining process requires the draining of wetlands, diversion of rivers, and the removal of trees and vegetation. Tailing ponds from mining operations cover almost 20 square miles of forest and bogs, and their pollutants are acutely toxic to aquatic life and known to contaminate the groundwater, surrounding soil, and surface water. Extracting one barrel of bitumen requires up to five barrels of fresh water, most of which is drawn from Alberta’s Athabasca River. Less than 10% of the water is returned to the river, which is threatening the long term survival of numerous fish, songbird, and waterfowl species. Oil sands development consumes twice the water used annually by the population of Calgary.
Bad enough? There’s more. Refining bitumen emits 3-4 times more greenhouse gas emissions (GHGs) than refining conventional oil, and the finished product releases more GHG per barrel when burned. Yet oil and gas companies are using less GHG-intensive natural gas to power the extraction. Even nuclear power developers see an opportunity; the Canadian company Bruce Power (a partnership that includes Cameco and TransCanada) recently announced a plan to build four nuclear power plants in Alberta to respond to the surge in demand created by the oil sands industry.
Tar sands extraction was recently deemed “the most destructive project on Earth” in a February 2008 report of the same name.3 The tar sands are also the world’s largest industrial project, with the amount of oil reserves second only to Saudi Arabia’s. Companies plan to spend as much as $125 billion to expand operations threefold over the next 10 to 15 years, and a typical oil sands project has a lifespan of over 50 years.”
Nearly all oil from the tar sands is exported to the United States and turned into transportation fuel. Canada currently exports over 2 million barrels per day (bpd) to the US, which it plans to increase to 3 million bpd by 2015.
Houston-based ConocoPhillips is hitching its ride to that vision. The company’s worldwide production totals 2.3 million bpd today, and over the next 20 years, it aims to pump out an eventual one million bpd from the tar sands. In February, ConocoPhillips Canada said that if other companies were successful in using nuclear energy to power Canadian oil-sands operations, the company would be a “fast follower.”4
ConocoPhillips announced its first investment in renewables, a relatively paltry $150 million, just last spring. Our doubts about ConocoPhillips’s strategic direction led Trillium Asset Management Corporation (“Trillium”) to file the first shareholder resolution addressing tar sands at the company. Our proposal asks for a report on the environmental damage that would result from the company’s expanding oil sands operations, including the implications of discontinuing its expansion plans. Shareholders will vote on the proposal in April.
You Never Write
The intent behind the proposal is to obtain information on how ConocoPhillips is anticipating the massive environmental risks associated with tar sands development and planning to mitigate them. Other companies heavily invested in the oil sands are starting to report publicly about their impacts, including Suncor, Shell, Encana, PetroCanada, and Imperial Oil. We believe investors are owed a better understanding of how ConocoPhillips is managing its risks in the tar sands.
The company’s latest sustainability report contained just one vague paragraph about its environmental responsibility in the tar sands. It discloses virtually nothing about one of the company’s main tar sands projects (known as Surmont), or about the implications of its $11 billion FCCL Oil Sands Partnership with EnCana, or its $5 billion pipeline partnership with TransCanada Corp. Syncrude, the tar sands joint venture in which ConocoPhillips holds a 9 percent interest, has issued a report, but the project’s environmental profile is disheartening. Canada’s Pembina Institute told Trillium that Syncrude lacks accredited management systems such as ISO 14001, and has yet to set voluntary GHG targets or participate in the Alberta Biodiversity Monitoring Initiative. It also has the weakest compliance record of all the operating mines. Syncrude received the lowest score (18 percent) of ten projects studied in Pembina’s Oil Sands Report Card published last year, and it was the only project that refused to provide information for the survey. (Syncrude’s competitors are not exactly standouts – the highest score was 56 percent.) The Report Card observed that overall, “Information about the actual and proposed environmental performance of individual oil sands operations is not easily accessible…. There is little comparative information about the actual and proposed environmental performance of individual oil sands operations and far too little discussion of best practices available to oil sands developers.”
No slam dunk
While it’s indisputable that demand for fossil fuels is currently as strong as ever, the days when oil companies can escape payment for the carbon emissions of their operations and product are increasingly numbered. Existing and impending regulations at the international, federal, and provincial level are placing a price on GHG emissions. The Kyoto Protocol obliges industrialized countries to reduce national GHG emissions below 1990 levels by 2012, and the December 2007 follow up meeting in Bali reaffirmed its cap-and-trade approach as the path going forward. Most of the 15 countries in which ConocoPhillips produces or explores for oil and natural gas have ratified Kyoto.
All too aware that the tar sands are preventing them from meeting their Kyoto obligations, in March, the Canadian federal government released a GHG reduction plan that would force new oil sands projects and coal-fired electricity plants to capture and store the bulk of their greenhouse gases. The plan imposes industry-wide 18 percent intensity reductions, followed by 2 percent reductions every year after until 2020 (although the regime would be reviewed in 2012). Companies that fail to meet their targets would face prosecution under the Criminal Code. Oil sands projects yet to be built would have to capture and store their emissions.
In a spring 2007 survey commissioned by the Pembina Institute, 71 percent of Albertans agreed that the Alberta provincial government should suspend new oil sands approvals until infrastructure and environmental management issues are addressed, and 70 percent favored total over intensity-based GHG reduction targets, “even if it costs industry more.” Oil companies are also facing lawsuits from Canada’s indigenous tribes and environmental groups that threaten to delay projects.
Even pressure from the U.S. is growing. A provision in last year’s energy bill bars government contracts for unconventional petroleum sources whose lifecycle GHG emissions exceed those of equivalent conventional fuels.
We could go on and on – and we do, in a letter to institutional investors soliciting their support for the ConocoPhillips resolution that you can find on our web site at www.trilliuminvest.com. Last year, a ConocoPhillips official admitted the industry has an image problem, noting that the oil industry ranks last in surveys – “last in credibility even behind tobacco.”5 Is it any wonder why? With so much cash on hand, it’s time for the oil and gas companies to begin the transition into energy companies that recognize that if we’re to have a future at all, it will need to be powered by renewable sources.
Notes
1. “Oil Sands Key Target for Global Energy Players,” Globe & Mail, December 11, 2006.
2. The Oil Sands Report Card (2007), Pembina Institute and World Wildlife Canada, p. vii.
3. Environmental Defence, Canada’s Toxic Tar Sands: The Most Destructive Project on Earth, February 2008, available at http://www.environmentaldefence.ca/reports/tarsands.htm.
4. http://www.heavyoilinfo.com/newsitems/conocophillips-seeks-oil-sands-cost-cutting.
5. “Experts Outline Energy of Fugure,” Topeka Capital Journal, October 5, 2007.
