Devon Energy Corporation Carbon Asset Risk 2014
|Company||Devon Energy Corporation|
|Filer||New York State Comptroller|
|Sector||Mining & Resources|
|Subject(s)||Climate Change; Greenhouse Gas Emissions|
|Resolved Clause Summary||Report on goals and plans to address carbon asset risk|
Devon is a leading energy company engaged in the exploration and production of crude oil and natural gas in North America.
Nearly every national government has recognized the need to address climate change and agreed (under the terms of the UN Framework Convention on Climate Change) that “deep cuts in greenhouse gas (GHG) emissions are required…to hold the increase in global average temperature below 2 degrees Celsius above pre-industrial levels…”
According to the International Energy Agency (IEA), “no more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2 degree goal, unless carbon capture and storage technology is widely deployed”.
Given the growing international concern about climate change, public actions to reduce GHG emissions significantly could reduce the value the value of Devon’s oil and gas reserves and/or related infrastructure before the end of their expected useful life.
Several recent studies indicate the importance of adequately accounting for and disclosing the downside risks that could result from lower-than-expected demand or prices for oil.
- A March 2013 research paper by Citigroup stated that market forces could “put in a plateau for global oil demand by the end of this decade.”
- HSBC reports that the equity valuation of oil producers could drop by 40 to 60 percent under a low emissions scenario.
In its 2012 10K, Devon acknowledged that climate change regulation could reduce demand for its products; however, Devon does not adequately disclose how it factors climate change risks and opportunities into its long-term strategic planning processes.
Investors need additional information on how Devon is preparing for potential scenarios in which demand for oil and gas is greatly reduced due to evolving policy, technology, or consumer responses to address climate change. Without additional disclosure, it is difficult for shareholder to determine whether Devon is adequately managing these risks or seizing related opportunities.
Resolved: Shareholders request that Devon prepare a report by October 2014, omitting proprietary information and prepared at reasonable cost, on the company’s goals and plans to address global concerns regarding the contribution of fossil fuel use to climate change, including analysis of long and short term financial and operational risks to the company.
We recommend the report include:
- The risks and opportunities associated with various low-carbon scenarios, including reducing GHG emissions by 80 percent by 2050, as well as a scenario in which global oil demand declines;
- How the company’s capital allocation plans account for the risks and opportunities in these scenarios, and how it will manage these risks;and,
- The Board of Directors’ role in overseeing capital allocation and climate risk reduction strategies.