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Investors put oil sands in chokehold
News Articles | Greening of Oil | Gary Park | May 18, 2010
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That came a week after the Norwegian government served notice it will block similar efforts forcing state-owned Statoil to pull out of the oil sands.
But don’t think for a minute that these shareholder activist attempts to green up and clean up operations in northern Alberta are headed down a blind alley.
Coalitions steadfast in demands
There is a firm resolve emerging from various coalitions of investors with minority stakes in oil sands companies such as Shell, Statoil, BP, ExxonMobil and ConocoPhillips warning that the long-term growth of the bitumen resource is in jeopardy unless the industry more aggressively and more openly manages its environmental and social risks.
The approach, which takes vocal protest to another level, was captured in a report released May 17 by Ceres, a United States group of investors, environmental organizations and other public interest agencies working with companies to deal with sustainability challenges such as climate change.
Doug Cogan, co-author of the report compiled by RiskMetrics, told a conference call that investors in the oil sands are putting their money at risk unless developers of the unconventional resource put together clearer plans to deal with carbon emissions, water use and land reclamation.
“What is happening at the moment in the oil sands … is kind of like the Gulf of Mexico spill, but playing out in slow motion,” he said.
Land-based oil spill, says Logan
Cogan said that if all of the United States adopted low-carbon fuel standards with a 20 percent reduction in carbon intensity by 2030 compared to conventional gasoline, demand for oil sands production could drop by one-third from the report’s baseline forecast.
Andrew Logan, oil and gas director at Ceres, likened events in the oil sands to a land-based oil spill, calling for significant efforts to accelerate remedial efforts, notably in the tailings ponds that hold toxic wastewater from projects.
The report said the environmental and financial risks of producing oil in northern Alberta may be even greater than the Gulf of Mexico now that the world’s leading producers have committed C$200 billion to triple output to almost 4 million barrels per day by 2030.
Ceres president Mindy Lubber said “the energy- and water-intensive natural of oil sands, combined with climate change regulations, permitting obstacles and other challenges, are a recipe for diminishing revenues and returns if not properly managed.”
The report estimated that oil prices of US$100 per barrel are needed to generate a competitive rate of return on C$120 billion in expansion projects, but if those prices rise to US$120-$150 per barrel, global oil demand will likely go onto decline in favor of alternative fuels.
Water intensive in world that is dry and getting drier
The authors noted that oil sands operations currently use three times more energy for each barrel of synthetic crude they produce, consume 4 barrels of water for every barrel of output and over the 2005-2015 period will increase their natural gas demand to 15 percent of Canada’s total production.
“Investors are concerned that many oil sands companies seem to be barreling ahead without well developed plans to manage the very significant risks they face related to carbon emissions, water scarcity and other key issues,” Logan said. “This lack of preparedness places tens and even hundreds of billions of dollars of capital at risk. It also raises questions about the viability of the oil sands as a long-term investment.”
He said the oil sands are water intensive in a world that is dry and getting drier and carbon intensive in a world that is increasingly carbon constrained, “yet few producers have so much as a target for reducing the intensity of their carbon emissions, let alone a plan to prosper in a world that is moving to reduce greenhouse gas emissions by 60 percent or more over the next several decades, which is the lifespan of individual oil sands projects.
“Investors want companies to consider the facts that carbon will be regulated, that water will be increasingly scarce, that tailings ponds will need to be cleaned up and that this will all be quite expensive,” he said.
Increasing shareholder pressure
Jack Ehnes, chief executive officer of the California State Teachers’ Retirement System, said the fund has US$1.9 billion invested in equity securities of BP, Shell, ExxonMobil and ConocoPhillips.
“We have quite a bit of our money at stake here … and we need to ensure that these (oil sands producers) are properly recognizing and managing this risk,” he said.
Ehnes said companies can expect shareholder resolutions in coming years, pressuring companies to disclose environmental and other risk they face from oil sands production and the strategies for dealing with those risks.
The report said the companies also need to improve their operational performance on a variety of issues – air emissions, water use, monitoring biodiversity and making arrangements with indigenous people, especially those downstream and downwind from projects.
It said the industry must also increase research and investment in technologies that can reduce environmental impacts, now that more technologies are being put into commercial use, while assuring investors that they are making positive contributions to public policy and government regulations.
Trillium unloads US$11 million in BP
Release of the report coincided with a clear message of changing investor attitudes when Trillium Asset Management, a US$900 million investment firm, unloaded its US$11 million holding in BP, citing the company’s role in a Texas refinery accident that killed 15 workers, a North Slope Alaska oil spill and now the Gulf of Mexico blowout and oil spill.
Stephanie Leighton, Trillium’s chief investment officer, said the firm did not feel BP was being properly managed from an environmental and safety standpoint.
Tagged with: oil sands, ceres, investors, riskmetrics report
