Under pressure, Exxon Mobil agrees to disclose risks of carbon rules

HOUSTON — Under pressure from activist shareholders, Exxon Mobil has agreed to disclose how carbon regulations could impact its business model and investment plans, investors said Thursday.

“Shareholder value is at stake if companies are not prepared for a low-carbon scenario,” said Natasha Lamb, director of equity research at Arjuna Capital, in a written statement. Arjuna is one of two Exxon investors who had pushed for shareholder resolution on the so-called Carbon Asset Risk report.

It’s the first time the Irving, Texas-based oil and gas giant has agreed to tell investors how it appraises carbon-intensive assets like oil sands under tougher climate rules. The agreement also marks the year’s first victory for investors who are pushing for similar changes at nine other energy producers, including Anadarko Petroleum, Chevron, Devon Energy and Hess.

Exxon Mobil declined to comment, but the agreement was confirmed in an email chain between a company spokesman and Lamb, obtained by FuelFix.

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The activists say that in 2012, public energy producers spent $674 billion on exploring and developing new reserves they can’t burn without causing “catastrophic” global warming.

“More and more unconventional ‘frontier’ assets are being booked on the balance sheet, such as deep water and tar sands,” Lamb said. “These reserves are not only the most carbon intensive, risky and expensive to extract, but the most vulnerable to devaluation.”

Those reserves are currently valued at $20 trillion on 200 of the largest energy companies’ balance sheets. But only a third of those reserves could be used before carbon emissions cause crippling climate change, the investors said.

Carbon Asset Risk Initiative

Late last year, a collection of well-heeled investors wielding $3 trillion formed the Carbon Asset Risk Initiative to press oil, gas and coal companies to publish regular reports on reserves they consider high risk because of their concentration of carbon. The group coordinated investor letters to 45 energy companies last fall.

Andrew Logan, director of the oil and gas program at Ceres, said the non-profit investor group will be looking “for concrete commitments by companies to avoid making riskier investments in the most carbon-intensive assets, which would demonstrate the companies’ ability to adapt as the world transitions to a low-carbon economy.”

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In an interview, Lamb said Exxon could start publishing the carbon risk report as early as the end of this month. The investors then plan to push Exxon to begin divesting from the riskiest assets, such as carbon-intensive oil sands and deep-water projects, and return money to shareholders instead.

“We wanted to ensure capital discipline,” Lamb said, adding that high spending has in recent years eaten into oil company profits. She said firms that have begun to regulate their investment levels — like European producers BP and Total — have been rewarded with a higher stock price.

Industry resistance

But Exxon isn’t likely to start selling off some of its fastest-growing prospects any time soon, said Brian Youngberg, an analyst with Edward Jones.

“It’s hard for a company of Exxon’s size to continue to invest and avoid deep-water, shale and oil sands, those are the three growth areas in the sector,” Youngberg said. “I can’t see them reducing their capital spending that significantly in response” to the shareholder pressure.

“Maybe they’ll add more disclosure to the projects they are investing in,” he said.

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And other oil companies will likely keep resisting activist calls to drop their investments in carbon-heavy projects, said Fadel Gheit, an analyst with Oppenheimer & Co.

“It’s not going to happen,” Gheit said.

Last year, the activists failed to get the votes for the first-ever shareholder initiative on carbon-driven asset risks, submitted to CONSOL Energy investors. Wealth manager As You Sow’s proposal got around 20 percent of the CONSOL Energy shareholder vote, equivalent to $1 billion in assets.

“Forward thinking companies need to reassess how they allocate shareholder capital and act strategically to shift their business models,” Lamb said. “If Big Oil can’t redirect capital to low carbon energy alternatives, investors will.”

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