A series of strong shareholder votes have sent a clear message that natural gas companies must do much more to address fugitive methane leakage and management. Shareholder proposals asking Houston-based Spectra Energy $SE, Tulsa-based Oneok $OKE, and Fort Worth-based Range Resources $RRC to issue reports on how they are managing high-climate-change-impact methane emissions have received favorable votes from company shareholders: 35.4%, 38.2%, and 21.7% respectively. These are the first proposals directly addressing how leaking methane affects the environmental profile of natural gas, calling on companies to disclose leakage rates and mitigation strategies.
But in the face of mounting investor concern, Range Resources management has decided to lash out at its own shareholders and their legitimate questions. In an inflammatory SEC filing, Range directly attacks shareholder rights, falsely claiming misalignment between Trillium and the company’s “real stockholders,” despite Trillium’s sizable holdings in the company. In response to the proposal, Range seems more interested in casting aspersions on its shareholders and avoiding hard questions than applying itself to find solutions to an operational inefficiency with potentially significant financial and environmental consequences. This is in sharp contrast to some peers that appear ready to address the problem.
Shareholders are concerned about the environmental, regulatory, and business risk natural gas companies face. Leaking gas is not only bad for business, but it squarely places the carbon footprint of natural gas into question. Without adequate disclosure from companies about how much methane is leaking, investors are in the dark,
said Natasha Lamb, Vice President at Trillium Asset Management, who filed the proposals on behalf of clients including the Sierra Club and the Christopher Reynolds Foundation. Co-filers include Zevin Asset Management, The Benedictine Sisters of Virginia, and Friends Fiduciary Corporation.
The oil and gas sector represents one of the largest and most rapidly growing sources of human generated methane emissions. Methane is the primary component of natural gas and is emitted from the time gas is drilled to the time it’s delivered. It is a potent contributor to accelerating climate change with 72x the impact of CO2 on global temperatures over a 20 year period. And a leakage rate above 3.2% makes natural gas worse than coal in driving global warming according to Princeton and the Environmental Defense Fund. Recent academic studies have identified leakage rates up to 9%, 3 times EPA estimates and 5 times industry estimates.
Accordingly, a 2012 joint investor statement representing $20 trillion in assets was published by the Investor Network on Climate Risk (INCR), and their European and Australian counterparts, calling on companies to implement best practice methane control technologies and programs of disclosure. “While natural gas can play an important role in making the transition to a low-carbon energy future, it cannot be considered a part of the solution to climate change without serious action to curb fugitive methane emissions,” said Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk.
In a letter to shareholders, Trillium notes methane leakage has a direct economic impact on natural gas companies: “A strong methane management program would indicate both a reduction in risk, as well as efficient operations maximizing gas for sale and shareholder value.” Lamb points out, “The business case for strong oversight and methane reduction targets is clear. Leaking gas is a symptom of poor management systems that neglect shareholder value and amplify climate change.” Lubber adds,
Considering that control technologies are not only available, but can be implemented profitably, investors are right to ask companies to explain how they are preventing this potential economic waste. Leaking methane is leaking revenue.
Gas captured through control processes can be sold in the market, generating positive returns, with control technologies boasting payback periods of less than 3 years. In fact, the National Resource Defense Council estimates control processes could generate $2 billion in annual revenues for the industry and reduce methane pollution by 80%.
“Given the rapid pace of natural gas development in the US, it is no surprise that operators appear to have prioritized growth over efficiency, and regulators have been slow to catch up,” said Lamb. The proposal highlights the potential for increased regulatory risk moving forward. Currently, the EPA is being sued by 7 states for violating the Clean Air act by failing to regulate methane, while the EPA’s own auditor has concluded current data is of questionable quality and insufficient to make policy decisions.
ISS Proxy Advisory Services, a leading advisory firm, issued “FOR” recommendations to its clients in support of the proposals, stating:
A vote FOR this proposal is warranted, as shareholders would benefit from additional information on how the company is managing its methane emissions. Such information, including quantitative emissions goals, would allow shareholders to assess relevant company performance.