Resolution Called for Oil Giant to Reevaluate the Business Risks
Activist shareholders lost their bid today to force oil giant BP to disclose detailed information about the risks associated with investing in the energy-intensive Canadian oil sands. Still, they chalked up a significant victory in the company’s response to their effort.
For the first time, BP disclosed information regarding the expectations of demand for tar sands oil and future regulations on carbon emissions that the company used when deciding on the viability of a planned $2.4 billion joint investment with Husky Energy in the Sunrise oil sands field in Alberta.
Special Resolution No. 25, presented to shareholders at BP’s annual meeting today in London, asked that BP go farther and commission reports reassessing its decision to proceed with the oil sands project, including looking at the projected price of carbon under potential international climate change treaties and other legislation and at fluctuations in the price of oil.
Supporters of the resolution — including the managers of the multibillion-dollar California state pension funds CalPERS and CalSTRS — worry that oil derived from the tar sands could become more costly with increasing regulation of greenhouse gases and tariffs placed on high-carbon fuels, such as those proposed in California.
“The oil sands are an expensive business — we are asking for relatively innocuous disclosure and transparency,” said Niall O’Shea, head of responsible investing at The Co-operative Asset Management group and a BP shareholder who filed the resolution.
“A company with such expertise and wealth should be innovating in the right direction [with investments in clean energy].”
Just over 6 percent of shareholders voted in favor of the resolution. An additional 9 percent abstained, taken as a sign by some of opposition to the Sunrise project but a reluctance to vote against management.
BP Chairman Carl-Henric Svanberg still recognized the shareholders concerns, telling the meeting:
“This resolution raises perfectly legitimate concerns — I understand the concerns, but I disagree with the analysis.
“The decision to move into the sands is a strategic one — most analysts think it is a stretch to think we can meet future energy demands without fossil fuels, we will need at least 50 million barrels a day of new oil.”
The Problem with Bitumen
The oil sands deposits in northern Alberta are the second largest reserve of oil in the world, behind only Saudi Arabia, and the main reason that Canada is the largest supplier of foreign oil to the United States.
A low-grade mix of bitumen, sand and rock lying beneath northern boreal forest, the oil sands cover an area roughly the size of Florida. About 3 percent of this area has been developed, and this region is considered by many to be the largest industrial project in the world.
Large quantities of water — two to four barrels of water per barrel of oil — is required to isolate crude oil. This water, left with high levels of heavy metals such as mercury and cadmium as well as petrochemicals like polycyclic aromatic hydrocarbons, is collected in large “tailings ponds” covering more than 50 square kilometers. A recent report from RiskMetrics Group warned that new Canadian laws that will require cleanup of those toxic ponds could put a serious dent in the corporate bottom line.
The carbon intensity of oil sands extraction has also brought the region under scrutiny for its impact on climate change. According to WWF, if fully exploited, it would generate enough carbon dioxide emissions to raise atmospheric levels by 12 parts per million.
“This would result in temperature rise of six degrees Celsius and lead the planet into catastrophic climate change,” Louise Rouse, director of investor engagement with FairPensions, told the board.
The oil sands projects are also having an impact on the traditions and resources used by the regions’ First Nations communities.
During the meeting, George Poitra of the Misikew Cree First Nation questioned BP’s executives about the impact their plan would have on the Cree and Metis communities, noting in particular the high cancer rates in downstream Fort Chipewyan and high levels of heavy metals in the Athabasca River, whose water is used for tar sands production.
“We have become environmental hostages on our own lands,” Poitra said.
Clayton Thomas-Muller, a Canadian aboriginal rights activist from the Indigenous Environmental Network, asked if BP would “respect the standing resolution by all 44 chiefs representing First Nations in the region for a moratorium on new projects.”
Protesting the Tar Sands
As the meeting was under way in London, Greenpeace members protested outside BP’s Alberta headquarters dressed in business suits with money flowing out of their pockets, “greenwashing” the corporate office with green paint.
UK Tar Sands Network protesters add their voices in the UK, where activists have been unique in the world (outside of Canada) in actively protesting the tar sands operations. They have demonstrated against the Canadian government, as well as British banks that invest in the tar sands and oil companies, including shutting down a BP gas station over the weekend in west London.
Campaigners in the UK have been strategically targeting BP because the company is not yet active in the sands, unlike Shell, which faces a shareholder resolution vote on the same concerns at its own annual meeting in May.
BP’s final decision to move into the Sunrise oil sands project has been delayed until later this year, the fourth time in three years that the verdict has been postponed. The company expect the Sunrise joint venture to produce 200,000 barrels a day by 2020. It would use in-situ techniques, rather than more environmentally damaging surface mining, but a recent Pembina Institute report finds that in-situ mining still results in more greenhouse gas emissions because of the highly energy-intensive process necessary to extract the oil and process it.
During the meeting, BP CEO Tony Hayward stressed that the oil company was still looking beyond petroleum, including investing $4 billion in alternative fuels since 2005.
“All forms of energy will play a role in our future, from oil sands to solar,” Hayward said.
Rouse disagreed with BP’s high continued reliance on fossil fuels.
“Their business strategy assumes that world energy demand will increase by 40 percent, 80 percent of which will be met by fossil fuels — but those assumptions are based on International Energy Agency’s reference scenarios of ‘business as usual’ without any action on climate change, any international regulation,” she said.
“Copenhagen did not achieve a lot, but it did determine that that scenario cannot be allowed to pass.”