ExxonMobil Faces Shareholder Challenge on Oil Sands

First-ever shareholder proposal asserts company is hiding oil sands risks from investors

5/25/2010 - At its annual meeting tomorrow in Dallas, ExxonMobil* will face its first-ever shareholder resolution challenging the company to disclose more information about its controversial investments in the Canadian oil sands. ExxonMobil is the latest company to face high-profile shareholder resolutions on this issue after strong votes at BP plc*, ConocoPhillips*, and Royal Dutch Shell* this spring. The resolution has garnered support from the largest proxy advisory firm, RiskMetrics Group, along with pension funds such as the California State Teachers Retirement Fund (CalSTRS).

Canada’s oil sands, also known as tar sands, are the second largest oil resource in the world, comprising over 173 billion barrels in reserves. Extraction and conversion of oil sands into usable fuel is energy-intensive and environmentally-damaging, requiring clear-cutting of the Boreal Forest, extensive water use, and the creation of massive amounts of toxic waste. Even using the most conservative lifecycle analysis, oil from this source emits between 15% and 40% more greenhouse gases than the average of oil from conventional sources.

ExxonMobil has dramatically increased investments in the oil sands over recent years through ExxonMobil Canada and through its 70% ownership of Imperial Oil*, one of Canada’s largest oil companies and a major player in the oil sands, with an investment value of $21.6B. At the end of 2009, ExxonMobil’s total proved reserves in the oil sands were over 2.7 billion barrels, nearly 12% of the company’s total proved reserves and almost 25% of the company’s liquid reserves. The company’s brand-new $8B oil sands mining project, Kearl, will begin operations in 2012.

Investors and independent analysts have raised doubts about the long-term economic viability of oil sands development given the high costs of extracting and converting oil sands, along with risks to future profitability presented by rising carbon costs, environmental regulations, and oil price fluctuations. According to a recent Goldman Sachs report, “Oil sands projects face significant environmental challenges… [which] present material risks to project viability and returns potential.”

Shareholders also point to risk arising from legal challenges filed by local indigenous communities affected by oil sands pollution and ecological harm, such as the Beaver Lake Cree Nation, which could drastically slow or halt oil sands development. Over 1,500 ExxonMobil or Imperial Oil project permits are listed in the Beaver Lake Cree case and could be directly impacted by a decision.

“There are clear environmental, social and economic challenges that a company faces when it decides to invest heavily in the Canadian oil sands,” said Emily Stone, Shareholder Advocate at Green Century Capital Management, lead filer of the resolution. “Without adequate disclosure, shareholders have no way of knowing how the company is addressing these risks or even if the company acknowledges that these risks exist.

"Investors are concerned that many companies seem to be moving ahead without a well-articulated plan to manage the environmental and social risks associated with the oil sands, and yet the risks they face are akin to a slow motion Gulf of Mexico oil spill." said Mindy S. Lubber, president of Ceres and director of the $10 trillion Investor Network on Climate Risk (INCR), which supports the resolution. Ceres commissioned the recent report Canada's Oil Sands: Shrinking Window of Opportunity.

“Companies are increasingly being forced to pay the price for the environmental damage caused by their oil sands operations,” stated Shelley Alpern, Director of Social Research and Advocacy at Trillium Asset Management Corporation, which co-filed the proposal. “Given the extra-long investment horizons of oil sands projects, shareholders must know how companies are preparing for these costs and mitigating future risks.”

The oil sands proposal at ExxonMobil (Item #9 on the company’s proxy statement) was filed by Green Century Capital Management, Trillium Asset Management Corporation, Sisters of St. Francis of Philadelphia, Madeline Moore, School Sisters of Notre Dame Cooperative Investment Fund, and the Congregation of the Sisters of the Holy Names of Jesus and Mary. 

 

RESOLUTION TEXT

WHEREAS:

ExxonMobil has significant investments in the Canadian oil sands.  

ExxonMobil owns 69.6% of Imperial Oil, one of Canada’s largest oil companies. Imperial is 100% owner of the Cold Lake oil sands project and also owns 25% of Syncrude. ExxonMobil and Imperial jointly own and operate 100% of the Kearl oil sands project.

According to ExxonMobil’s FY2008 10-K, 1.1 billion barrels (over 50%) of our company’s additional proven reserves come from Kearl, demonstrating our company’s dependence on Canada’s oil sands for long term growth.

There are significant environmental, social and economic challenges associated with the oil sands.

The resource-intensive and environmentally damaging nature of oil sands development may introduce regulatory, operational, liability and reputational risks to oil sands companies.  

 

  • Water scarcity is a growing operational concern for oil sands development. Local annual water flows are projected to decrease 24-68% over the coming century. According to the Petroleum Technology Alliance of Canada, "rapidly growing demands for water… will drive and limit development."
  • The persistence of tailing ponds, which are known to leak toxic pollutants into groundwater, may present risks along with significant reclamation costs not currently carried on our balance sheet.

 

Lawsuits filed by Aboriginal peoples against the Canadian government challenge oil sands and pipeline projects even after approval.

Mining the oil sands’ tar-like bitumen is expensive, with multi-decade payback horizons. Volatile oil prices and changing demand can impact the viability of these projects. The International Energy Agency found that since oil prices peaked in July 2008, 85% of deferred or cancelled non-OPEC production capacity was in the oil sands.  According to Ernst & Young’s 2009 Business Risk Report: Oil and Gas, “[c]ompanies that invest in long term oil projects with a high marginal cost of production, such as… oil sands, are likely to be the most vulnerable.” 

Nexen, another oil company, dedicates over three pages of its FY2008 10-K to risks associated specifically with its “heavy oil” (oil sands) projects. 

Shareholders believe ExxonMobil has not adequately reported on how possible risks associated with oil sands projects may impact our company’s long term financial performance, given our company’s significant investments in this area. 

RESOLVED:

Shareholders request that the Board prepare 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 report should be prepared at reasonable cost, omit proprietary and legal strategy information, address risks other than those associated with or attributable to climate change, and be available to investors by August 2010.

SUPPORTING STATEMENT:

The Board shall determine the scope of the report. Proponents believe risk information of interest to shareholders could include, among other things, assessing the impact of worst-case along with reasonably likely scenarios regarding: 

 

  • Environmentally-related restrictions that might hinder or penalize operations, including those associated with water, land and tailings; 
  • Potential effects of Aboriginal lawsuits against the Canadian government;
  • Vulnerabilities to market forces that might lead to oil sands project cancellations.

 

Green Century Capital Management is an investment advisory firm focused on environmentally responsible investing.  Founded by a partnership of non-profit environmental advocacy organizations in 1991, Green Century's mission is to provide people who care about a clean, healthy planet the opportunity to use the clout of their investment dollars to encourage environmentally responsible corporate behavior. Green Century believes that shareholder advocacy is a critical component of responsible investing and actively advocates for greater corporate environmental accountability.  Green Century manages two environmentally responsible mutual funds, the Green Century Balanced Fund and the Green Century Equity Fund.

*As of March 31, 2010, ExxonMobil Corporation was not held by the Green Century Balanced Fund or the Green Century Equity Fund; BP plc  was not held by the Green Century Balanced Fund or the Green Century Equity Fund; ConocoPhillips  was not held by the Green Century Balanced Fund or the Green Century Equity Fund; Royal Dutch Shell  was not held by the Green Century Balanced Fund or the Green Century Equity Fund; and Imperial Oil was not held by the Green Century Balanced Fund or the Green Century Equity Fund. Portfolio composition will change due to ongoing management of the Funds.  Please refer to the Green Century Funds website for current information regarding the Funds' portfolio holdings. These holdings are subject to risk as described in the Funds' prospectus. References to specific investments should not be construed as a recommendation of the securities by the Funds, their administrator, or their distributor.

You should consider the Funds' investment objectives, risks, charges, and expenses carefully before investing.  For a prospectus that contains this and other information about the Funds, call 1-800-93-GREEN, visit www.greencentury.com or email info@greencentury.com.  Please read the prospectus carefully before investing.  Investments are not FDIC insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

The Green Century Funds are distributed by UMB Distribution Services, LLC. 5/10

 


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