Guest blog authored by Jim Coburn, who directs Ceres’s corporate sustainability disclosure program:
Just two years after BP’s Deepwater Horizon rig exploded in the Gulf of Mexico, another oil industry giant is poised to begin drilling in an even more forbidding, unpredictable and remote environment: the Alaskan shoreline.Shell is moving forward with at least two Arctic wells this year, at a time when confidence in the oil and gas industry’s risk management practices is remarkably low.
In the wake of the Deepwater Horizon disaster, several reports have found that many oil and gas companies—not just BP—were poorly managing the risks of offshore drilling. As it prepares to move into the Arctic, has Shell set itself apart from its competitors, or is the company taking avoidable risks in an unforgiving environment?
A new report by Ceres shows that oil and gas companies—Shell included—are not doing enough to manage offshore drilling risks and disclose their efforts to investors. The report, Sustainable Extraction?, examines risk disclosure in SEC filings submitted in the first quarter of 2011 by 10 of the world’s largest oil and gas companies. It finds that out of 50 deepwater risk disclosure scores on key metrics including spill response procedures and drilling risk management, only four scores were good, and 29 (nearly 60 percent) were poor or no disclosure.
This striking lack of disclosure makes it nearly impossible for investors to understand how companies are managing the range of potential drilling risks. And investors are already wary.
Lloyd’s, the world’s largest insurance market, cautions that “the Arctic is a frontier unlike any other” that will “remain a complex risk environment.” In its Arctic Opening report, Lloyd’s highlights geographic remoteness, ongoing changes to the environment as a result of climate change and extreme weather as key risk factors of offshore drilling in the Arctic.
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