ExxonMobil has significant investments in the Canadian oil sands. ExxonMobil owns 69.6% of Imperial Oil, one of Canada’s largest oil companies. Imperial is 100% owner of the Cold Lake oil sands project and also owns 25% of Syncrude. ExxonMobil and Imperial jointly own and operate 100% of the Kearl oil sands project. According to ExxonMobil’s FY2008 10-K, 1.1 billion barrels (over 50%) of our company’s additional proven reserves come from Kearl, demonstrating our company’s dependence on Canada’s oil sands for long term growth. There are significant environmental, social and economic challenges associated with the oil sands. The resource-intensive and environmentally damaging nature of oil sands development may introduce regulatory, operational, liability and reputational risks to oil sands companies.
Water scarcity is a growing operational concern for oil sands development. Local annual water flows are projected to decrease 24-68% over the coming century. According to the Petroleum Technology Alliance of Canada, “rapidly growing demands for water… will drive and limit development.”
The persistence of tailing ponds, which are known to leak toxic pollutants into groundwater, may present risks along with significant reclamation costs not currently carried on our balance sheet.
Lawsuits filed by Aboriginal peoples against the Canadian government challenge oil sands and pipeline projects even after approval. Mining the oil sands’ tar-like bitumen is expensive, with multi-decade payback horizons. Volatile oil prices and changing demand can impact the viability of these projects. The International Energy Agency found that since oil prices peaked in July 2008, 85% of deferred or cancelled non-OPEC production capacity was in the oil sands. According to Ernst & Young’s 2009 Business Risk Report: Oil and Gas, “*c+ompanies that invest in long term oil projects with a high marginal cost of production, such as… oil sands, are likely to be the most vulnerable.” Nexen, another oil company, dedicates over three pages of its FY2008 10-K to risks associated specifically with its “heavy oil” (oil sands) projects. Shareholders believe ExxonMobil has not adequately reported on how possible risks associated with oil sands projects may impact our company’s long term financial performance, given our company’s significant investments in this area.
Shareholders request that the Board prepare a report discussing possible long term risks to the company’s finances and operations posed by the environmental, social and economic challenges associated with the oil sands. The report should be prepared at reasonable cost, omit proprietary and legal strategy information, address risks other than those associated with or attributable to climate change, and be available to investors by August 2010.
The Board shall determine the scope of the report. Proponents believe risk information of interest to shareholders could include, among other things, assessing the impact of worst-case along with reasonably likely scenarios regarding:
Environmentally-related restrictions that might hinder or penalize operations, including those associated with water, land and tailings;
Potential effects of Aboriginal lawsuits against the Canadian government;
Vulnerabilities to market forces that might lead to oil sands project cancellations.