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ExxonMobil, Chevron Heeding Mistrust of Hydrofracking

ExxonMobil Corp. this week launched a public relations campaign while Chevron Corp. is working with industry groups to assure the public that drilling unconventional wells using hydraulic fracturing (hydrofracking) is safe. The moves preceded separate annual meetings where shareholders voiced growing support for more disclosure about the well stimulation practices.

In the annual meeting in Dallas, ExxonMobil CEO Rex Tillerson faced a barrage of shareholders who voiced their concerns about several issues, but mostly about hydrofracking.

A resolution calling for ExxonMobil's board of directors to prepare a report on the "known and potential impacts of...fracturing operations" was defeated but still garnered support from more than 28% of those voting. A similar measure submitted for a vote at Chevron's annual meeting in San Ramon, CA, also was defeated, but it received support from more than 40% of those voting.

The growing support by shareholders to require producers to disclose more information has not gone unnoticed, Tillerson said. Hydrofracking critics -- and the media -- simply do not understand, he asserted.

"The early detractors slap a label on something, and then it takes us a long time to get it peeled off," Tillerson said. Gas drilling critics are "wrong" about hydrofracking. "It's not new to us." Drilling is a risky business, but if hydrofracking were to create environmental contamination, the companies would clean it up. "There are ways to deal with that."

ExxonMobil "supports and agrees" that "we need to go out and get data" about the safety of hydrofracking. "We fully understand it and we have solutions to it. Once we understand and know what our contribution will be, we'll act...We've taken an enormous position in the unconventional space, and it's vital to our U.S. success. We've got to address it and we are confident it can be addressed."

After conducting some public polling and finding that there are concerns about drilling's environmental impacts, Tillerson said ExxonMobil responded by aggressively buying advertisements to persuade critics that the industry is able to drill safely and will clean up any contamination that may result.

ExxonMobil ran full-page advertising spreads last Monday in the New York Times and Washington Post, which both promoted the benefits of North American gas drilling. The ads depicted a typical unconventional gas well in the Marcellus Shale that included a detailed drawing of the shale well's containment layers of steel and cement that are designed to prevent gas and fluids from migrating to soil and water from the pipe.

"We're not trying to characterize [hydrofracking] as an activity that does not have risk," Tillerson told the audience. "But we think there have been a lot of pretty casual statements about risks that are simply not backed up by facts."

ExxonMobil has nothing to lose and everything to gain in its hydrofrack persuasion campaign. After buying XTO Energy Inc. last year the producer became North America's top gas producer with shale gas, tight gas, coalbed methane, shale oil and conventional production in its portfolio (see Daily GPI, June 28, 2010).

XTO, now an ExxonMobil subsidiary, brought with it massive leaseholds in the Barnett, Haynesville, Marcellus, Fayetteville and Woodford gas shales, the San Juan/Raton Basin, the Uinta Basin, East Texas Cotton Valley/Bossier Sands, the Permian Basin, the oily Bakken Shale and land along the Gulf Coast.

ExxonMobil at the time already controlled the largest leasehold in the Horn River Basin of British Columbia and was one of the biggest gas producers in Colorado's Piceance Basin. In addition, the super major early last year acknowledged that it had partnered with privately held Pennsylvania General Energy to explore nearly 300,000 net acres in Pennsylvania and New York's Marcellus Shale (see Daily GPI, Feb. 2, 2010).

Tillerson acknowledged that groundwater supplies have in the past been polluted, but he claimed that the likely cause was from wells that had not been "drilled as they should" in the 1920s, '30s and '40s. "More often than not," he said, groundwater pollution cases aren't "associated with any current-day activities."

Hydrofrack critics have made "pretty casual statements...that have not been backed up with any kind of facts."

In his remarks to shareholders, Chevron CEO John Watson didn't mention the hydrofracking controversy, but he explained in some detail how the company uses the "safest, most environmentally friendly practices" across the board for exploration and development. Vice Chairman George Kirkland also reminded the audience that developing gas from shale rock formations costs less than other types of gas production, which offers advantages to the company and therefore its shareholders.

In an emailed statement a spokesman said Chevron also is working with industry groups also to educate the public about the chemicals it uses and procedures used to dispose of waste and wastewater. Hydrofracking "can be done in a sustainable and environmentally friendly fashion," but environmental standards need to be raised "across the industry," said the spokesman.

Chevron also has a lot at stake in the hydrofrack controversy. Although its North American onshore holdings aren't as extensive as ExxonMobil, the producer has more than one million net acres in shale plays; today most of its development is focused in the Marcellus and Antrim shales. Chevron plans to release information about its drilling chemicals and other shale operations by the end of June through an organization called FracFocus, the spokesman said.

The As You Sow Foundation -- a nonprofit organization that backed the hydrofracking resolutions at the ExxonMobil and Chevron meetings -- said that although the measures were defeated, the double-digit votes by shareholders indicate that "mainstream investors are concerned about fracking and want more disclosure."

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