Disclosing the Facts 2015 is the fourth in a series of investor reports intended to promote improved operating practices among oil and gas companies engaged in horizontal drilling and hydraulic fracturing. Hydraulic fracturing operations often use toxic chemicals and high volumes of water, release significant levels of greenhouse gases and other pollutants, and have the potential to adversely impact local communities when not properly managed. These issues translate into financial risks to companies and shareholders in the form of fines, regulations, or threats to companies’ social license to operate.Download the Executive Summary
Following the maxim of “what gets measured, gets managed”, this report encourages oil and gas companies to increase disclosure about their use of current best practices to minimize the environmental risks and community impacts of their “fracking” activities. Disclosure of best management practices and associated key performance indicators is the primary means by which investors gauge how companies are managing the business risks associated with their environmental and community impacts. Disclosure helps both investors and other stakeholders determine whether companies have the systems in place to minimize the community and environmental risks of their operations.
This 2015 scorecard benchmarks the public disclosures of 30 companies on 39 key performance indicators. It distinguishes companies disclosing more about practices and impacts from those disclosing less. The scorecard assesses five areas of environmental, social, and governance metrics emphasizing, on a play-by-play basis, quantitative disclosures for: (1) Toxic chemicals; (2) Water and waste management; (3) Air emissions; (4) Community impacts; and (5) Management accountability. It relies solely on publicly available information companies provide on their websites or in corporate financial statements or other reports linked from their websites.
This year, the report card has been compiled amidst a dramatic contraction of well drilling and completion activities and enormous financial write-offs. In this operating environment, companies might be tempted to slow disclosure efforts and perhaps even cut corners on best practices. However, this year’s scorecard results show that corporate disclosure efforts have increased among a core group of industry disclosure leaders and even some companies that have been disclosure laggards. Companies continue to pursue operating innovations that not only save money but also yield environmental benefits. These include, for example, substituting pipelines for trucks to move water and waste water, enhancing leak detection and repair efforts, and using less, but safer and more cost-effective chemicals.
Yet, while progress has been made, much more remains to be done. For instance, the industry as a whole must improve its localized disclosures since companies’ social license to operate is often determined by local concerns and perceptions of corporate responsiveness. Local impacts can include land and water use, air and water pollution, and nuisances such as noise, light pollution, traffic, and road damage. Progress must also continue on issues such as reducing chemical toxicity, setting goals for reducing methane and other air emissions, and identifying local community concerns and company responses.
The rising scores of leadership companies, a trend that began with the second edition of Disclosing the Facts in 2014, show that, at least for a segment of the oil and gas industry, the scorecard is having its desired effect of triggering a “race to the top” in improved disclosure.
As the scoring leader, BHP Billiton has demonstrated that companies can tell their story concisely and in a fashion readily accessible to investors and other stakeholders. Such information is critical to investors who seek clear data on which to base investment decisions, especially in an industry that is facing tremendous challenges, including the most basic challenge of retaining a social license to operate. Through this scorecard, investors seek to encourage the entire industry to implement current best management practices, to report on those practices, and to provide quantitative indicators of success in reducing impacts.
While significant improvement in reporting has been seen in a handful of companies, 70 percent of the companies assessed still score below 28 percent on scorecard indicators. Companies continue to miss opportunities to address issues of public concern that feature prominently in media reports and activist advocacy critical of the industry. These issues include, for example, use of diesel fuel in fracturing fluids, radioactive waste, and induced seismicity (earthquakes). Diesel fuel does not appear to be widely used in fracturing fluids, yet many companies are silent on whether they have a policy to avoid it. Naturally occurring radioactive material waste has surfaced as an issue, especially in Pennsylvania and North Dakota, but few companies discuss straightforward procedures for reducing radioactivity risks. Additionally, while companies increasingly acknowledge induced seismicity as a risk, they often fail to discuss the specific steps they are taking to manage the hazard.
The failure of the majority of the largest oil and gas companies to either adopt current best management practices or to report on their adoption is a continuing challenge requiring ongoing engagement by investors.
Companies should report data associated with their operational impacts using quantitative metrics, on a play-by-play basis, in order for investors to be able to rigorously assess company practices. In particular:
In addition to enhancing their reporting,
These tables contain the score breakdown for each company by indicator. A checkmark means the company earned a point for that metric.
|COMPANY||2015 SCORE*||2014 SCORE|
|BHP Billiton, Ltd. (BHP)||32||18|
|Hess Corp. (HES)||21||17|
|Apache Corp. (APA)||20||13|
|CONSOL Energy, Inc. (CNX)||19||5|
|Noble Energy, Inc. (NBL)||19||13|
|Southwestern Energy Co. (SWN)||16||2|
|Anadarko Petroleum Corp. (APC)||15||8|
|QEP Resources, Inc. (QEP)||15||1|
|EQT Corp. (EQT)||14||16|
|ConocoPhillips Corp. (COP)||11||5|
|Range Resources Corp. (RRC)||11||9|
|Royal Dutch Shell plc (RDS)||11||9|
|Occidental Petroleum Corp. (OXY)||10||7|
|Penn Virginia Corp. (PVA)||10||9|
|BP plc (BP)||8||6|
|Cabot Oil & Gas Corp. (COG)||8||8|
|Encana Corp. (ECA)||8||15|
|EOG Resources, Inc. (EOG)||8||9|
|Devon Energy Corp. (DVN)||7||5|
|Exco Resources, Inc.(XCO)||7||7|
|Newfield Exploration Co. (NFX)||6||4|
|Chesapeake Energy Corp. (CHK)||4||7|
|Chevron Corp. (CVX)||4||6|
|Exxon Mobil Corp. (XOM)||4||5|
|Pioneer Natural Resources** (PXD)||3||-|
|Ultra Petroleum Corp. (UPL)||3||9|
|WPX Energy, Inc. (WPX)||3||3|
|Continental Resources, Inc. (CLR)||2||0|
|Whiting Petroleum Corp. (WLL)||2||3|
|Carrizo Oil & Gas, Inc. (CRZO)||0||0|
* 2015 had a total of 39 possible points. 2014 had a total of 35 possible points.
** For the 2015 scorecard, Pioneer Natural Resources was substituted for Talisman Energy, Inc., which was acquired by Repsol, S.A.
|COMPANY||Quantitative Reporting Toxicity Reduction||No Diesel Fuel in Fracturing Fluids||No BTEX in Fracturing Fluids||Website Disclaimer CBI Exclusion||Section Score|
|Ultra Petroleum *||0||0||0||0||0|
|Whiting Oil & Gas||0||0||0||0||0|
|COMPANY||Report Practices of Cement Integrity||Well Integrity||Avoids inducing seismic activity||Pre-drill H2O monitor^||Post-drill H2O monitor^||Flowback water reuse %^||Total water use^||Water source types^||Non-potable water policy||Water intensity^||Closed tank waterstore^||Closed loop drilling residuals^||NORMs disclosure||Section Score|
|Ultra Petroleum *||0||0||0||0||0||0||0||0||0||0||0||0||1||1|
|Whiting Oil & Gas||0||0||0||0||0||0||0||0||0||0||0||0||0||0|
|COMPANY||% Green completions^||Low emission engines pad ops.^||% low emission vehicle conversion||NOX and VOCs reporting^||NOX and VOCs reductions^||Pipelines replace trucks||Methane leakage||Low-bleed controllers||Leak detection technology||Leak inspection frequency||Methane reductions||GHG reductions||Section Score|
|Ultra Petroleum *||1||0||0||0||0||1||0||0||0||0||0||0||2|
|Whiting Oil & Gas||0||0||0||0||0||0||0||0||1||0||0||0||1|
|COMPANY||Disclose community impact concerns, company response^||Aggregate statistics for local concerns||Upward reporting of local concern statistics||Traffic congestion policies||Road damage payment policies||Section Total|
|Ultra Petroleum *||0||0||0||0||0||0|
|Whiting Oil & Gas||0||0||0||0||0||0|
|COMPANY||Senior management pay tied to HES||3rd party audit for HES||3rd party information prior to hiring contractors||NOVs and fines^||NOV trends^||Section Totals|
|Whiting Oil & Gas||0||0||0||1||0||1|
|Ultra Petroleum *||0||0||0||0||0||0|
The information in this report has been prepared from sources and data the authors believe to be reliable, but we assume no liability for and make no guarantee as to its adequacy, accuracy, timeliness or completeness. Boston Common Asset Management and the mutual funds that they manage may have invested in and may in the future invest in some of the companies mentioned in this report. The information in this report is not designed to be investment advice regarding any security, company or industry and should not be relied upon to make investment decisions. We cannot and do not comment on the suitability or profitability of any particular investment. All investments involve risk, including the risk of losing principal. No information herein is intended as an offer or solicitation of an offer to sell or buy, or as a sponsorship of any company, security, or fund. Opinions expressed and facts stated herein are subject to change without notice.