Green Century Joins Investors Pressing Energy Companies on Deepwater Drilling Risk
August 5, 2010 - In the wake of significant financial losses from the Gulf of Mexico deepwater offshore drilling disaster and in response to a proliferation of offshore drilling worldwide, Green Century Capital Management (Green Century) joined more than 50 other U.S. and global investors in sending letters to major energy companies asking them to disclose information regarding their risk oversight measures, including spill prevention and response plans, for their offshore oil operations around the world.
The letters, sent to CEOs at 27 oil and gas companies, were signed by 58 global investors with collective assets totaling more than $2.5 trillion, including Green Century, the New York State Comptroller, California State Treasurer, Florida State Board of Administration and the UK-based Local Authority Pension Fund Authority Forum.
"It is important for all companies involved in subsea deepwater drilling to be open and transparent with investors and stakeholders at this crucial historic moment," wrote the investors.
"The shareholder harm that has flowed from the BP* spill has focused investor attention on governance, compliance and management systems needed to minimize risks associated with deepwater offshore oil and gas development worldwide," the letter continued. "The BP Gulf of Mexico disaster has also raised concerns about response plans by companies and the industry for dealing with offshore accidents."
The letters were sent to 27 companies, including the world's three largest deepwater oil producers – Petrobras*, ExxonMobil* and Royal Dutch Shell*. Letters were not sent to BP or Anadarko Petroleum*, which jointly owned the Deepwater Horizon rig that exploded in April, causing the world's worst-ever spill that sent nearly five million barrels of oil into the Gulf of Mexico. Investors have seen BP's stock fall by more than a third since the spill.
"The recent tragedy in the Gulf illustrates the enormous impact that corporate irresponsibility can have on shareholders and highlights the need for full disclosure of the challenges associated with this risky form of drilling,” said Larisa Ruoff, Director of Shareholder Advocacy for Green Century. “Companies must come clean about environmental risks that they face and prove to shareholders that they are able to prevent and mitigate environmental harm.”
"Investors are rightly raising questions about whether and how the rest of the oil industry is prepared to manage the risks associated with the industry's move toward increasingly extreme water depths and operating conditions to find oil," said Andrew Logan, oil program director at Ceres, a leading network of investors and environmental groups which helped organize the investor letters. "The BP disaster demonstrates that the shift to deeper waters comes with a significantly increased risk profile, and that the cost of getting environmental risk management wrong has increased dramatically."
The letter includes questions on five key topics: company investments in spill prevention and response activity, including offshore drilling and spill response capability; spill contingency plans for managing deepwater blowouts; lessons learned from the BP disaster, including their position on possible new regulations and more robust enforcement on offshore drilling in the Gulf and elsewhere; possible actions to improve their safety contractor selection and oversight practices; and governance systems for overseeing management of offshore oil and gas operations. Companies are asked to respond by November 1.
Deepwater offshore drilling has become increasingly critical to the global oil industry, accounting for roughly half of new oil discoveries over the last five years. Companies such as BP, ExxonMobil and Royal Dutch Shell are especially eager to explore in deep waters because most of the world's land-based oil reserves are in the hands of state-controlled companies.
Deepwater oil production capacity (2,000 feet or deeper) has tripled since 2000 to five million barrels a day and has the potential to double again by 2015, according to Cambridge Energy Research Associates. There are now 14,000 deepwater wells worldwide.
A second letter was sent by Green Century and most of the same investors to 26 companies that provide insurance for offshore drilling activity. The letter asks if insurers are, among other questions: considering adjustments to their overall exposure to offshore oil and gas operations, including possible changes in policy volume; considering changes in their underwriting criteria; supportive of new regulations that would reduce offshore drilling risks.
Swiss Re* has estimated that total insured losses for all affected parties from the BP rig explosion and spill could top $3.5 billion - a figure that would surpass the $2.2-$2.5 billion in annual insurance premiums worldwide for oil and gas exploration.
The oil and insurance letters and the investor signatories to each of those letters are available at the Ceres website.
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.
* Neither the Green Century Balanced Fund nor the Green Century Equity Fund held BP plc, Petrobras, ExxonMobil Corporation, Royal Dutch Shell, Anadarko Petroleum, or Swiss Re as of June 30, 2010. 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 email@example.com. Please read the prospectus carefully before investing.
The Green Century Funds are distributed by UMB Distribution Services, LLC. 8/10
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