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Anadarko, EOG to Disclose Fracking Risks to Investors

Two of the biggest onshore operators in the United States, Anadarko Petroleum Corp. and EOG Resources Inc., will disclose information on the financial risks posed to their investors associated with hydraulic fracturing (fracking) under an agreement reached Friday with the New York Office of the Attorney General (OAG). The settlement comes on the heels of ExxonMobil Corp.'s first unconventional drilling risk report, which was issued voluntarily to investors this week.

The agreement with Anadarko and EOG was announced by New York Attorney General Eric Schneiderman, who had subpoenaed the operators and other producers seeking the disclosure information. The two producers said they would "commit to providing publicly accessible information on the financial effects of regulation, litigation and environmental impacts on their fracking operations," he said.

In June 2011, a group of producers and operators that included Anadarko, EOG, Chesapeake Energy Corp., Talisman Energy Inc. and Baker Hughes Inc. were subpoenaed by the OAG for information regarding their disclosure practices under New York's Martin Act, which grants broad powers to access businesses' financial records. Anadarko and EOG subsequently provided the documents to the OAG regarding the fracking disclosure practices. The agreements with the OAG, known as assurances of discontinuance, conclude the investigations into Anadarko and EOG, but other companies still are being pursued for fracking disclosures.

"Investors and the public have a right to know all relevant information about the environmental, financial, and regulatory risks associated with the companies they are considering investing in," said Schneiderman. "By joining with my office to commit to greater public disclosure of the environmental and financial risks associated with their actions, these companies are setting a strong example for the rest of their industry."

The disclosures by the producers would be made in U.S. Securities and Exchange (SEC) Form 10-Ks, the annual summary reports. The agreements also commit the producers to make additional information related to their fracking operations available through other publicly accessible sources such as company websites, annual reports to shareholders, and environmental or safety reports.

Under the agreements, Anadarko and EOG committed to disclose information and analyses concerning:

  • Financial risks posed by the environmental impacts associated with fracking, such as effects on drinking water aquifers, risks from chemical use and handling, water use and wastewater handling and disposal, and air emissions, and detailed discussions of the companies' efforts to minimize these environmental impacts;
  • Financial risks posed by current/probable future regulation and legislation related to fracking, such as state/federal moratoriums, local bans or restrictive ordinances, or requirements for chemical disclosures used in fracking fluids; and
  • Company strategies/actions for reducing, offsetting, limiting or otherwise managing the financial effects of regulation, litigation or environmental impacts related to fracking.

ExxonMobil earlier this year acquiesced to a minority group of shareholders in agreeing to issue annual reports outlining how it assesses and manages risks associated with developing unconventional resources (see Shale Daily, Oct. 1). Houston-based Baker on Wednesday also formally adopted a policy to disclose drilling risks.

Although EOG and Anadarko operate in several onshore basins, they do not pursue unconventional operations in New York, which has imposed a moratorium on high-volume fracking.

"These agreements give a boost to investors seeking increased disclosures about fracking," said Investor Environmental Health Network Executive Director Richard Liroff. "Schneiderman's agreements represent important progress in illuminating for investors how well companies are managing fracking's environmental risks and community impacts."

Mindy Lubber, president of nonprofit Ceres, an $11 trillion investor network, said that “without robust reporting, shareholders cannot be assured that a company is taking tangible steps to minimize the risks associated with fracking. These agreements with Anadarko and EOG will set a bar for stronger disclosure that the rest of the industry should follow."

Unrelated to the fracking disclosure subpoenas, the OAG in August 2011 also subpoenaed Range Resources Corp., Cabot Oil & Gas Corp. Goodrich Petroleum Corp. and Chesapeake about how they calculated production estimates and drilling costs to investors (see Shale Daily, Aug. 22. 2011). The SEC at that time also requested information regarding production and reserve estimates. There was no comment regarding that investigation.

Anadarko, headquartered in The Woodlands north of Houston, primarily executes its development plans in three oily areas, Colorado's Wattenberg Field, the Eagle Ford Shale and the Permian Basin. Most of EOG's development today also is oil-focused, in the Eagle Ford and Bakken shales, as well as in the Permian.

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