Big oil companies face growing concern on fracking

DALLAS/SAN RAMON, California Thu May 26, 2011 8:39am EDT

Exxon Mobil CEO and Chairman Rex Tillerson speaks as he and other top oil and gas industry executives testify during a Senate Finance Committee hearing on Capitol Hill in Washington May 12, 2011. REUTERS/Kevin Lamarque

Exxon Mobil CEO and Chairman Rex Tillerson speaks as he and other top oil and gas industry executives testify during a Senate Finance Committee hearing on Capitol Hill in Washington May 12, 2011.

Credit: Reuters/Kevin Lamarque

DALLAS/SAN RAMON, California (Reuters) - Large blocks of investors in the two biggest U.S. oil companies on Wednesday demanded more disclosure about the environmental risks of extracting oil and gas through hydraulic fracturing.

Exxon Mobil Corp defended the practice at its annual shareholder meeting on Wednesday, even as investors peppered Chief Executive Rex Tillerson with concerns and questions about it.

A proposal requiring more disclosure by Exxon on the impact of "fracking" received about 30 percent of the votes by shareholders in the world's largest publicly traded oil company.

At rival Chevron Corp, which became heavily involved in fracking through a recent acquisition, 41 percent of shareholders backed a similar resolution.

"Breaking 40 percent on a first year resolution has only happened a few times in the last few decades, so it shows how seriously the company's shareholders are taking this issue," said Michael Passoff, who focuses on fracking at San Francisco-based corporate responsibility group As You Sow.

Hydraulic fracturing involves injecting a mix of water, chemicals and sand into the earth to break up shale rock, in order to release oil or natural gas. Environmentalists say it can contaminate groundwater with dangerous chemicals.

The industry insists it is safe, and Tillerson said there were claims about the 50-year-old technology that had no basis in fact. The company regularly meets with local officials and politicians, and is running an advertising campaign aimed at addressing public concerns.

NOT RISK-FREE

While acknowledging the risks, Tillerson said Exxon works to bring together regulators in states with shale drilling to examine current rules and determine which are most effective.

"We're not trying to characterize this as an activity that does not have risks," he told reporters after the meeting in Dallas.

Regulators in states where shale drilling is growing at breakneck speed are "stretched", but rules governing fracking should not be set at the federal level, he said. Chevron echoed a desire for regulation to stay at state level.

However, Passoff said even regulators acknowledge that the current regulation by states is inadequate.

Exxon made a $35 billion bet on shale gas when it bought XTO in 201O, and aims to double U.S. natural gas output in a decade. As a result of this and other ambitious plans, oilfield service providers such as Schlumberger Ltd and Halliburton Co have seen huge growth in their fracking operations.

Chevron became involved in the Marcellus shale region centered on Pennsylvania through its $3 billion purchase of Atlas Energy and then an acreage deal with Chief Oil & Gas.

Chevron is growing production from Atlas aggressively, with plans to expand output at least seven-fold.

But at Wednesday's meeting at Chevron headquarters in San Ramon, California, speakers raised other environmental topics, including an $18 billion judgment against the company in Ecuador. Chevron is battling that ruling in a U.S. court, and accuses the plaintiffs of extortion.

A few dozen protestors were outside the sprawling Chevron campus, including some dressed as turtles who are concerned about that creature's habitats near Chevron's Australian natural gas operations, as well as another dressed as a pig.

Earlier, New York State Comptroller Thomas DiNapoli, who runs a fund that owns 7.5 million Chevron shares, urged the company to "face reality" and settle the 18-year-old Ecuador case.

"Investors don't derive any benefit from this never-ending courtroom drama," DiNapoli said in a statement.

Inside the meeting, Amazon Watch founder Atossa Soltani reminded Chief Executive John Watson that, at an annual meeting a decade ago, she had warned Chevron of the environmental damage liability in Ecuador it would inherit by buying Texaco.

Watson responded by running a video setting out Chevron's case, including an infamous clip in which Soltani, as she listens to the plaintiffs' lawyers discuss tactics for intimidating the Ecuadorean court, warns them: "I just want you to know that it's illegal to conspire to break the law."

(Reporting by Anna Driver in Dallas and Braden Reddall in San Ramon, California; editing by Alden Bentley and Dale Hudson)

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