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August 21, 2012
Sustainability Management by Oil Firms Lacking
    by Robert Kropp

A report from oekom, a German research firm, analyzes the sustainability performance of oil and gas companies, finding that as technological demands increase the management of risk is failing to keep up.

In the recently published Private Empire: ExxonMobil and American Power, author Steve Coll described the lengths to which Lee Raymond, the former CEO of ExxonMobil, would go to assure shareowners that the company was booking new oil and gas reserves at a rate at least equal to the rate at which already booked reserves were being depleted.

On the one hand, ExxonMobil complied with Securities and Exchange regulations in its financial filings, and as conventional sources dried up reported decreased amounts of reserves. But in public pronouncements, on the other hand, Raymond would report that the booking of new reserves was sufficient to replace the old, doing so by including unconventional sources such as tar sands oil that were disallowed at the time by the SEC.

The pressure on oil and gas companies to maintain consistent reserves was highlighted this week by Kristina Rüter, an analyst at oekom research. "Companies are under huge pressure from shareholders to find enough new reserves to replace depleted oil and gas reserves as quickly as possible," she said.

The occasion for Rüter's comment was the publication by oekom of a new report analyzing the sustainability performances of 149 of the world's oil and gas companies. Citing such recent developments as the Deepwater Horizon oil spill in the Gulf of Mexico and the opening of the Arctic to oil exploration, Rüter observed, "Opening up these new reserves often leads to serious environmental pollution."

Of the 149 companies included in oekom's analysis, 26 qualified for a detailed rating based on their sustainability performance, and only nine met the research firm's minimum standards for sustainability management. Overall, oekom found, "Companies' efforts on the climate protection front are half-hearted." For example, only three companies—Hess, Statoil, and Total—have established specific emissions reduction targets, although unconventional methods such as tar sands extraction result in much higher levels of greenhouse gas (GHG) emissions.

Furthermore, "Corruption is a huge problem in many resource-rich countries," Rüter said. Yet over 40% of the companies analyzed by oekom were found to have violated competition rules relating to price fixing. That such widespread infractions continue to occur despite the fact that many of the companies are signatories to the Extractive Industry Transparency Initiative (EITI) suggests that transparency by companies in the sector remains insufficient.

That lack of transparency was highlighted earlier this month in a report from Ceres, which found that despite SEC guidance on climate change disclosure, the disclosures by most of the world's 10 largest publicly-owned oil and gas companies are lacking.

"The quality of climate risk disclosure in SEC filings is generally inadequate to allow investors to conduct complete and accurate assessments of risks and future performance," Ceres stated.

The analysis by oekom came to a similar conclusion, stating, "The impetus for greater consideration of environmental and climate protection targets in the oil and gas industry must come primarily from policy-makers. Past experience has shown that voluntary initiatives by the sector do not produce the necessary trend reversal."

"Possible measures here include, for example, abolishing subsidies and tax breaks for the sector and introducing stricter environmental regulations for activities in sensitive natural environments," oekom stated.


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