Continental Resources Flaring 2013
|Company||Continental Resources Inc.|
|Filer||Mercy Investment Services, Inc.|
|Sector||Oil and Gas|
|Subject(s)||Air Pollution; Climate Change; Greenhouse Gas Emissions|
|Resolved Clause Summary||Set goals to reduce or eliminate natural gas flaring|
|Status||Withdrawn; Ongoing dialogue|
The rapid growth in tight oil production, particularly in North Dakota, has led to increased domestic flaring and propelled the U.S. into the top 10 gas flaring countries globally along with Russia, Nigeria, and Iraq. The New York Times reported that the gas flared daily in North Dakota, about a third of the state’s production, represents enough energy to heat half a million homes. Despite low gas prices, this represents hundreds of millions of dollars in additional potential revenue.
While the industry has announced plans to invest in additional pipeline and processing infrastructure in North Dakota to utilize natural gas, the plans announced to date appear insufficient to prevent growth in production from continuing to significantly outpace infrastructure capacity.
Investors recognize the environmental and financial risks associated with natural gas flaring. In March 2012, 36 investors representing $500 billion in assets wrote a letter to oil and gas companies, including Continental, requesting information regarding the companies’ flaring activities in North Dakota, Texas, Colorado, and Ohio. The letter noted that investors “are concerned that excessive flaring, because of its impact on air quality and climate change, poses significant risks for the companies involved, and for the industry at large.” Given the considerable controversy that already surrounds natural gas hydraulic fracturing, operational restrictions for shale oil are a very real risk. A lack of aggressive industry action also invites potentially inhibiting regulatory responses.
Reducing gas flaring can help companies meet other objectives, such as reducing greenhouse gas emissions and managing risks associated with Low-Carbon Fuel Standards. Due to the relatively high liquids content in Bakken gas, flaring in this region represents substantial forgone revenue.
Leading companies, such as Hess, disclose the amount of gas that they flare and have set quantitative goals to reduce flaring in their operations. Hess achieved its five-year target of 50% flare reduction in Algeria and Equatorial Guinea within three years and aims to keep flaring rates in the Bakken below the state’s goal of 10%. Whiting Petroleum, a major producer in the Bakken, has stated a goal of zero flaring-related emissions.
Flaring poses financial, operational, and reputational risks to Continental, and is a potential threat to its license to operate. Roughly half of the company’s proven reserves were located in North Dakota as of December 31, 2011, and the company has requested numerous exemptions from state law that otherwise restrict flaring after the first year of operation. Yet our company provides little substantive information to shareholders on how it plans to manage the potential risks related to its significant flaring activities.
Shareholders request that the Board of Directors adopt quantitative, company-wide goals, based on current technologies, for reducing or eliminating flaring in all operations and facilities under the company’s financial or operational control; and that the Company report to shareholders by December 2, 2013, on its plans and progress towards achieving these goals. The report should omit proprietary information and be prepared at reasonable cost.