Eighty-six billion dollars is a lot of money, even for one of the world’s biggest companies. That’s the “true cost” to BP shareholders from the company’s 2010 Deepwater Horizon disaster in the Gulf of Mexico as of February 2012, according to Société Générale. It represents the reduction in BP’s share price compared to its competitors—ExxonMobil, Chevron and Shell—whose share prices have grown over the last two years while BP has failed to keep pace. Faced with such staggering sums, investors are willing to fight for years—and spend a lot of money—to recover their share of those losses. New York and Ohio’s public employee pension funds sued BP not long after the spill, claiming that the company “adhered to lower safety standards in its Gulf of Mexico operations than elsewhere in the world, despite claims that the company would implement a single worldwide safety standard.” They’re seeking to recover losses of at least $180 million. Investors have also urged companies to explain their plans for preventing and coping with a potential blow-out. In the wake of the BP disaster, investors managing more than $2.5 trillion wrote to 27 major oil and gas companies, asking them to document their risk management practices in deepwater drilling operations. But investors still have reason to wonder whether companies’ risk management practices have actually improved. Ceres will soon issue a new report: “Sustainable Extraction? An Analysis of SEC Disclosure by Major Oil & Gas Companies on Climate Risk & Deepwater Drilling Risk,” revealing that 10 of the world’s largest oil and gas companies failed to adequately disclose the risks in theirdeepwater drilling activities in filings submitted to the Securities and Exchange Commission in 2011’s first quarter: Link to Ceres A lack of transparency around environmental and safety issues is particularly concerning. After the BP blowout, the National Research Council recommended that “industry and regulators should improve corporate and industrywide systems for reporting safety-related incidents,” adding: “there appears to be an industrywide reluctance to disseminate information on such events.”
But in its most recent filings from the first quarter of 2012, Chevron, one of the top drilling firms in the deepwater Gulf, failed to provide any environmental and safety statistics. And Chevron’s claims on its website of improving its practices since the BP disaster are brief and undocumented. Research into and development of safety measures for deepwater drilling are also critical to investors, but information on this topic was largely missing from companies scored by Ceres. Deepwater drilling requires the use of new and untested technologies in some of the planet’s most extreme environments, yet of the 10 companies studied, seven provided no substantial information on safety R&D.
Shell, the largest bidder in a recent $2.6 billion Gulf drilling lease auction, was one of the seven companies with no substantial information on safety R&D. In it most recent filing, the company mentioned that its research and development business unit is “also responsible for providing functional leadership across Shell in the areas of safety and environment,” but provided no detail about either the portion of R&D effort committed to safety or the focus of that research. Investors and other experts
have called for improved management of offshore drilling risks. The Obama Administration has taken several steps, such as establishing a new regulatory body (the Bureau of Ocean Energy Management, Regulation and Enforcement), to better regulate environmental and safety standards for offshore drilling. And Interior Secretary Ken Salazar called for companies to “examine our drilling systems thoroughly so that we can ensure that this type of disaster does not happen again.”Unfortunately, the oil and gas industry hasn’t responded with sufficient reforms or adequate disclosure. It’s in everyone’s best interest—companies, investors, and society—that they do. Until that happens, deepwater drilling should be strictly limited – and investors in the oil and gas sectors should exercise extreme caution. The cost of indiscretion could be another $86 billion.
Jim Coburn directs the corporate disclosure program at Ceres, a U.S.-based sustainability advocacy group. Ceres directs the Investor Network on Climate Risk, a network of 100 investors with collective assets totaling $10 trillion focused on the business impacts of climate change and other sustainability challenges.