Fracking Disclosure Gathers Steam Among Exxon, Chevron Shareholders

The usually docile shareholders of Exxon Mobil Corp. and Chevron Corp. are likely to make their voices heard this year on the risks of tapping oil and gas shale reservoirs.

When proposed before, increased disclosure of the risks of hydraulic fracturing failed to receive enough support in the face of steadfast opposition from the companies' boards. But the issue has gathered steam in recent elections and experts expect even more support for increased disclosures at Exxon and Chevron's shareholder meetings, to be held May 30.

If enough shareholder votes favor the proposals, they could lead management to cave in to some petitions before next year's shareholder meetings, said David Becher, a professor of finance and corporate governance at Drexel University.

Some shareholders are asking Exxon and Chevron, the two largest U.S. oil companies by market value, to prepare reports on the risks to their operations and finances associated with public opposition to hydraulic fracturing, a technique that has allowed oil companies to unlock massive supplies of previously unattainable oil and natural gas. Both oil behemoths have sharply increased their shale oil-and-gas operations in the U.S. after making multibillion-dollar acquisitions in recent years.

The technique, which involves fracturing rock formations with high-pressure jets of water and chemicals, has become a matter of concern to environmentalists and officials who have worried about pollution and water disposal. Last year, shareholder proposals to have the companies prepare a report on the environmental impact of fracking gained 40.5% of Chevron's shareholder votes, and 28.25% of Exxon's.

Exxon Mobil tried to omit the proposal from its proxy statement this year but its removal was rejected by the Securities & Exchange Commission, which Becher said is a sign of how concerned the companies are about the increasing popularity of the fracking proposal. "If Exxon would be sure the proposal doesn't have a chance to pass it wouldn't have tried to leave it out," he added.

This year, in the energy sector, seven of 10 proposals asking for more disclosure of fracking risks were withdrawn after shareholders reached agreements with their companies' management, according to proxy-advisory firm Institutional Shareholder Services Inc.

ISS is recommending Exxon and Chevron shareholders to vote in favor of proposal, saying shareholders would benefit from more-detailed information regarding the risks of fracking, including its community and environmental impact. Exxon and Chevron are against the proposal, arguing they have in place risk-management systems and public information addressing concerns about fracking.

ISS also is recommending investors vote in favor of the election of an independent chairman of the board of both companies.

The advisory firm said Exxon and Chevron's current board structure, which calls for the election of a lead or presiding director, doesn't provide a sufficient counterbalance to the combined position of chief executive and chairman of the board.

The proposal obtained 31.3% of Exxon's shareholders votes last year. It wasn't included in Chevron's proxy last year, but in 2007 and 2008, it was rejected by 64% and 85% of shares voted, respectively.

Both companies are urging shareholders to vote against the proposal, saying they believe the interests of all shareholders are best served through the current model.

Copyright (c) 2012 Dow Jones & Company, Inc.


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