Major Investors Warn Energy
Companies of Business Risks in Flaring Gas at Shale Oil Wells
March 27, 2012
To Whom It May Concern:
We are a group of 37 investors, representing $500 billion in
total assets, who are concerned about the financial risks associated with the
flaring of natural gas that has accompanied fast-proliferating oil production
from shale formations in North Dakota, Texas and elsewhere in the U.S.
We are concerned that excessive flaring, because of its impact
on air quality and climate change, poses significant risks for the companies
involved, and for the industry at large, ultimately threatening the industry’s
license to operate.
As you know, shale oil production, made possible by hydraulic
fracturing technology, is positioned for dramatic growth in the U.S. Goldman
Sachs forecasted recently that the U.S. is poised to become the world’s largest
oil producer in the next five years, with nearly all of this projected growth
coming from shale oil.
Given the considerable controversy that already surrounds
natural gas hydraulic fracturing, which has led to moratoria in places like New
York State, Quebec and France, operational restrictions for shale oil are a very
A lack of aggressive industry action also invites potentially
inhibiting regulatory responses.
In addition, as long-term investors, we are concerned that
flaring of natural gas wastes a valuable product.
Even at today’s depressed wellhead price of under $3.00 per
thousand cubic feet, the 100 million cubic feet of natural gas that were flared
each day in North Dakota last year1
represents approximately $110 million in lost revenue.
It also represents annual emissions of at
least 2 million tons of carbon dioxide, as much as adding 384,000 cars to the
On a lifecycle basis, emissions from oil produced with high
flaring rates may be comparable to those from Canada’s vast oil sands region.2
This could make it subject to penalties under
clean fuel standards, like those adopted by California, and being actively
considered by the 13 northeast states that are members of the Regional
Greenhouse Gas Initiative. Such standards reduce the carbon intensity of fuel
over time and limit the market for more carbon-intensive sources.
While flaring has been most prevalent and controversial in North
Dakota’s Bakken shale region, it is also a growing concern in the Eagle Ford
shale region in Texas, as well as in emerging production markets like Colorado’s
Niobrara shale region and Ohio’s Utica shale region.
We understand that the industry has plans to invest in
additional pipeline and processing infrastructure in North Dakota to utilize
natural gas, but the plans announced to date appear insufficient to prevent
growth in associated gas production from continuing to significantly outpace
This is a major concern given the sharp increase in shale oil
production projected for the coming decade – a trend that is being accelerated
in part by a recent industry shift from shale gas to shale oil due to natural
gas prices being at a 10-year low.3
We therefore are writing to request information about the amount
your company is currently flaring, as well as details about your plans to reduce
flaring at existing wells and prevent it at future wells.
We would appreciate a response to the above questions, as well
as any additional information that the Company believes would be helpful to
investors on this subject, by May 1, 2012.
We would also welcome the opportunity to meet with the Company
to discuss these issues in more detail.
Please direct responses, as well as any questions and concerns,
to Andrew Logan, Oil Industry Program Director at Ceres, at Logan@ceres.org or
(See list of investor signatories, representing ~$500 billion in
assets, on next page.)
As You Sow
Boston Common Asset Management, LLC
Calvert Investments, Inc.
Christian Brothers Investment Services, Inc.
Christopher Reynolds Foundation
Dexia Asset Management
Diocese of Springfield, IL
Domini Social Investments, LLC
Dominican Sisters of Springfield, IL
F&C Asset Management Ltd.
First Affirmative Financial Network
Green Century Capital Management
Impax Asset Management
Joseph Rowntree Charitable Trust
Local Authority Pension Fund Forum
The Sustainability Group of Loring,
Wolcott & Coolidge Trust, LLC
Mercy Investment Services, Inc.
Miller/Howard Investments, Inc.
Northwest Coalition for Responsible Investment
PaxWorld Management LLC
Portfolio 21 Investments
Praxis Mutual Funds
Presbyterian Church (USA)
Rathbone Greenbank Investments
Region VI Coalition for Responsible Investment
Sisters of Charity of Cincinnati,
Corporate Responsibility Committee
Sisters of Charity of Nazareth Corporate
Sisters of the Presentation of Aberdeen, SD
Trillium Asset Management
Walden Asset Management
Zevin Asset Management, LLC
1 The New York Times, In North Dakota, Flames of Wasted
Natural Gas Light the Prairie, September 26, 2011:
2 U.S. Department of State,
Keystone XL Pipeline Project, Final Environmental
Impact Statement, Appendix: Life-Cycle Greenhouse
Gas Emissions of Petroleum Products from WCSP Oil Sands Crudes
Compared with Reference Crudes, July 13,
3 E.g. Chesapeake Energy, Chesapeake Energy Corporation
Updates its 2012 Operating Plan in Response to Low Natural Gas Prices,
January 23, 2012