Oil industry losing the shale PR battle

A shale gas wellAs questions about hydraulic fracturing – fracking as it is known in the industry – continue to build, the oil and gas industry is finding investors asking for more transparency as to how companies are going to face the growing risks to production.

France has banned fracking, and US federal regulators are investigating the safety of the process.

But the real risk to the industry at this point is how some US states and cities have taken the issue into their own hands: Pittsburgh has banned such drilling, and the New York State Assembly approved a temporary moratorium. There are other efforts under way in pockets across the US to further control or bar the process.

At ExxonMobil’s annual shareholder meeting Wednesday, Rex Tillerson, the chief executive, said fracking has been around for years, but those working to undermine it were presenting it as “new and futuristic”.

While he acknowledged that there are risks to producing from shale, Tillerson said if it is done right there should be no environmental damage to the water supply as some fear:

There’s an awful lot of things between us and the fresh water zone.

Michael Passoff, senior strategist of the CSR programme of As You Sow, the shareholder activist, is among those leading the charge for more transparency at shareholder meetings of ExxonMobil, Chevron and other oil and gas companies. He insists:

There are a lot of red flags here for investors.

Mr Passoff says concerns about water pollution from the hydraulic fracturing and horizontal drilling used to produce gas from shale creates regulatory risk, legal liability and a threat to company reputations.

Robin West, chairman of PFC Energy, the consultancy, notes the real issue is what the public believes:

If we’re going to capture this enormous resource, we have to find ways to give the public confidence. In terms of energy policy, if shale is going to be a game changer, these issues have to be resolved. This is important to the energy security of the country.’

The bottom line is that it also is important to the industry, which is investing heavily in shale acreage with plans to extract gas, and now oil, from the hard source rock through the fracking process not only in the US but around the world. If the backlash cannot be contained, at least some of the billions of dollars the industry has invested in production could well be under threat.

The proposal for more transparency on the issue received only 28.2 per cent of the vote at Exxon’s shareholder meeting. But Ken Culotta, partner at law firm King & Spalding, said public concern had grown to such an extent that even industry-friendly places such as Texas could pass legislation for more transparency and better controls, which may slow shale development in some jurisdictions.

Instead of recommending shareholders vote against calls for more transparency (the position that won the day at Exxon’s annual shareholder meeting Wednesday), perhaps it makes sense for the industry to do whatever it can to ease concerns about the process.  For, as Andrew Logan, oil and gas director for Ceres, the investor network for environmental and social issues, put it:

It’s now becoming clear the industry is losing the public relations battle.

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