Leaked Gas is Lost Revenue:  Leaked gas has a direct economic impact on companies, as it is no longer available for sale, establishing a clear business case for reduction targets and control processes.  Poor oversight of gas infrastructure, including storage facilities, has a direct economic impact on Occidental Petroleum.  Implementing the proposal would allow investors to better assess the Company’s methane risk exposure to unnecessary economic loss from leaking gas, an evolving regulatory regime (i.e. the Company’s ability to respond quickly and economically to a change in policy), and environmental liability. Without proper disclosure, we believe shareholders are unable to effectively assess methane risk.

The New York Times reported in April 2016 that leakage from oil and gas wells is the largest source of methane gas in the atmosphere.⁵ In April 2016, the E.P.A. released a report concluding the amount of the gas leaking from oil and gas wells is much higher than previously reported.⁶

An October 2016 study from journal Nature⁷ asserts that methane emissions from fossil fuel production are 20 to 60 percent higher than widely cited estimates. It is one of the most exhaustive analyses of long-term global methane emissions and methane carbon isotope records, with implications for climate policy worldwide.  The Nature study analyzed thousands of air samples taken over three decades (between 1984 and 2013) at 84 sites on every continent that are part of NOAA's Global Greenhouse Gas Reference Network.

Reporting is Inadequate:  We find current reporting to be woefully inadequate and there is a large dissonance between current industry/company reporting/estimates and scientific findings.

Academic studies have identified methane leakage rates of up to 9%, over 6X the Environmental Protection Agency’s (EPA) 1.4% leakage estimate⁸  and industry estimates. The short-term climactic benefit of natural gas over coal is negated when leakage rates exceed 2.7%.⁹

The 2017 shareholder proposal to Occidental Petroleum was written in response to the deficiencies in the company’s current reporting.  The company states that, “it is an active and longstanding participant in the Natural Gas Star Program and the Global Methane initiative, which the US EPA established and manages”¹⁰; however, the company does not provide current, publicly available information on leakage rates and a quantitative strategy to reduce the impacts of methane emissions and flaring and what effects they may have on the Company

Regulatory Risk:  A failure by companies to proactively inspect, monitor, and upgrade critical transportation infrastructure with the aim of reducing methane emissions has resulted in more rigorous regulations.

The EPA released new rules in May 2016 to reduce oil and gas sector methane emissions by 11 million metric tons by 2025. While methane regulations are under review by the new head of the EPA, there has been clear momentum toward greater reporting requirements and reduction targets over the last 3 years.

At the public opinion level, natural gas remains a controversial issue.  A March 23, 2015 Gallup poll shows Americans are split on support for fracking in oil and natural gas, with 40% in favor and 40% against. ¹⁴

At the state level, New York State is the latest state to ban hydraulic fracturing.¹⁵ Colorado adopted the first regulations in the nation expected to directly reduce 1000,000 tons of methane from oil and gas operations, followed by Ohio and Wyoming.

Investor Action: In 2017, 15 shareholder proposals have been filed at various companies asking for methane management disclosures.

From 2006 to 2016, methane proposals garnered the largest average vote percentages (25%) of any other environmental proposals.¹⁶

In October 2014, investors representing over 300 billion in assets under management called on the EPA to regulate methane as a serious climate problem, with proven cost effective solutions, stating it is insufficient to rely on voluntary initiatives and state-level action and a methane policy can reduce risk and create long-term value for investors and the economy.¹⁷

High profile investor Jeremy Grantham of GMO LLC also highlighted the challenge of natural gas in his February 2014 Quarterly Letter to clients: “Fracking gas,’ like all natural gas, is basically methane. Methane unfortunately is an even more potent greenhouse gas than CO2: at an interval of 100 years it is now estimated to be 32 times as bad, and at 20 years to be 72 times worse! If it leaks from well head to stove by more than 3%, it gives back its critical advantage and becomes no better than coal in its climate effect. Emissions, for whatever reasons, have not been carefully monitored.  It would be nice, though, to know how fast we are roasting our planet. A series of tests in the next three years or so, privately funded, will measure leakages. In old cities with Victorian era gas lines, leakage will be terrible – probably 2% or 3% on their own. At some “cowboy” wells, emissions will be much higher than that.”¹⁸  

Leakage rate:

No methane leakage rate is reported as a percentage of production, throughput, or stored gas, despite such reporting by peer companies. And there is no way for investors to calculate a leakage rate.  While investors should have transparency into the absolute amount of methane emission in metric tons, more importantly investors seek to understand the leakage rate, a normalized value which allows investors to compare Occidental Petroleum’s performance to its peers, and understand how Occidental Petroleum’s performance affects the climate.

The company also does not masses of gross Scope 1 methane emissions released into the atmosphere in units of metric tons CH4 for the whole organization broken down by emissions category including:  combustion, flaring, process emissions, vented emissions and fugitive emissions.²¹

Currently, 22 companies in North America and Europe provide their leak rates as a percentage of natural gas production or throughput at given segment through disclosure to CDP²³ (Carbon Disclosure Project

Company-wide quantitative targets:  There are no company-wide methane reduction targets.  Quantitative target setting is a core aspect of the Proposal.

In contrast to Occidental Petroleum’s actions, the One Future Initiative is a group of natural gas supply chain companies that are setting a goal of achieving a 1% leakage rate. The Company states that they, “strive to minimize flaring of natural gas²⁴.”  One would hope this is an obvious goal for all natural gas companies, but it is neither a quantitative disclosure nor helpful to investors seeking an apples-to-apples comparison of Occidental Petroleum’s performance and targets versus its peers.

Lack of Real Time Measurement and Management:  Research underlines the need for real time measurement and management to control poorly performing assets.

EDF’s February 2015 Gathering and Processing study found 30% of facilities contribute 80% of leaks for that segment of the value chain. ²⁵

Currently, Occidental reports that only 0-5% of their operations are monitored and managed in real time.  The remainder is based on engineering calculations and emissions factors, which are based on what are considered outdated estimates.