Oil and gas companies are doing a terrible job of disclosing climate and deepwater drilling risks, even in light of the tragic Gulf of Mexico oil spill, according to a new report.
While companies are making extensive capital investments related to climate change and deepwater drilling, they are generally failing to adequately disclose the associated risks in a manner consistent with US Securities and Exchange Commission’s (SEC) rules and growing investor expectations, according to a report co-authored by Boston-based investor coalition Ceres and advisory firm David Gardiner & Associates.
The report evaluated SEC filings for the 10 largest US-listed oil and gas companies – Apache, BP, Chevron, ConocoPhillips, Eni, ExxonMobil, Marathon, Shell, Suncor and Total – none of which received an excellent rating in the report.
“We didn’t find any of the disclosure really valuable enough to help investors understand the risks,” said Jim Coburn, senior manager of investor programmes for Ceres.
BP, Eni and Suncor provided relatively better climate risk disclosure than other companies reviewed, while Apache and ExxonMobil provided the lowest quality disclosure, according to the report.
The 10 companies were evaluated in six categories and, of the 60 total ratings, only five were marked as ‘good’ and 34, more than 50%, were ranked poor or undisclosed.
Physical risks got short shrift in most filings, with six companies providing no disclosure, three offering poor disclosure and only BP making fair disclosure, the report stated. But investors want these companies to assess and disclose how vulnerable their operations are to extreme weather events such as increasing storms, rising seas and severe droughts, Coburn said.
“I think companies don’t take a good look at the category because they assume ahead of time that it’s too complicated,” Coburn said.
Only Eni and Suncor earned good reviews for their reporting on regulatory risks. Eni, for example, stated it expects an increasing liability under the EU Emissions Trading System, with higher operating expenses in the range of €650 million–750 million ($800 million–920 million), mostly in 2013–14.
Suncor quantified the potential costs of pending and possible greenhouse gas regulations, assessing scenarios using a carbon price range of $15-45 per tonne of carbon dioxide equivalent (tCO2e).
“That’s something we’d like to see other companies report so we know how they’re incorporating a carbon price into their planning,” Coburn said. Although not mentioned in the report, BP factors carbon costs into projects where emissions are significant; in industrialised countries, it uses a figure of $40/tCO2e.
Drilling and safety disclosures 'weak'
In spite of the 2010 Deepwater Horizon disaster, disclosure on drilling and safety remained weak overall, even for drilling risk management and spill response plans, according to the report. But this type of disclosure is critical because the era of easy-to-access resources is over, forcing companies to develop in more challenging locations, investors said.
“Oil and gas exploration and production is becoming a riskier business every year,” said Julie Fox Gorte, senior vice-president for sustainable investing for investor Pax World Management in Portsmouth, New Hampshire.
The 10 companies were rated in five categories for drilling risk: safety and environmental statistics, drilling risk management, spill response, safety R&D and corporate governance on drilling. Out of the 50 ratings, only four were good, and 29, or 58%, were ranked poor or undisclosed.
“The industry has made remarkable improvements in the technology,” said Paul Bugala, a Bethesda, Maryland-based senior sustainability analyst focused on extractive industries at Calvert Asset Management. “It’s just that disclosure needs to catch up.”
These companies may still be working on revamping their procedures and disclosure efforts following the Gulf disaster, Gorte noted.
“In the meantime, being silent is not an option,” she said. “I think it’s important to communicate with your investors even if you’re not perfect.”
BP and Total provided relatively better deepwater drilling risk disclosure than the other companies reviewed, while Suncor provided the lowest quality disclosure.
BP provided good disclosure in four of five deepwater drilling categories and fair disclosure on its spill response procedures, improving its disclosure after the disaster, but the company has not provided enough statistical information for investors to evaluate its efforts, Coburn said.
“It’s very hard to tell how these processes are working,” he said. “BP was obviously overwhelmed with the cost of responding to the spill and it’s made the company much less valuable than it used to be.”
By. Gloria Gonzalez
Source: Environmental Finance