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November 26, 2014

Investors Ratchet Up Engagement Over Stranded Assets
    by Robert Kropp

Undeterred by ExxonMobil's plan to burn all fossil fuel reserves already on its books, As You Sow and Arjuna Capital file a shareowner resolution requesting that the company return capital to investors rather than embark on further exploration. -- Emboldened by analyses warning that as much as 80% of the reserves already treated as assets by fossil fuel companies will have to stay in the ground if there is to be any hope of limiting global warming to no more than 2°C, sustainable investors and other environmental advocates filed a number of resolutions in 2014 requesting that companies report on the issue.

Much was made of the announcement in March by As You Sow and Arjuna Capital that they had withdrawn such a resolution at ExxonMobil when the company agreed to produce a report on stranded assets. To describe the oil and gas giant's report as disappointing would be an understatement: “Any future capping of carbon-based fuels to the levels of a 'low-carbon scenario' is highly unlikely due to pressing social needs for energy,” the company reported.

In other words, Exxon persists in believing that it will continue to have the social license to burn all the fossil fuel reserves counted as assets on its books, despite the grave implications for a world already being transformed by climate change.

“Exxon has taken a public position that demand for oil will continue to grow, no matter how warm the globe gets, no matter how harsh the impacts of that warming, and regardless of technology changes allowing for cheaper, cleaner renewable fuels,” said Danielle Fugere, President of As You Sow.

In response, As You Sow and Arjuna Capital have submitted a shareowner resolution for the 2015 proxy season, requesting that Exxon “commit to increasing the amount authorized for capital distributions to shareholders through dividends or share buy backs.”

“Investors are concerned Exxon Mobil is not preparing for a low demand scenario and that potential and planned capital expenditures on high cost high carbon projects are at risk of eroding shareholder value,” the resolution states.

“This proposal is breaking new ground by asking Big Oil not to break ground on high-cost, high-carbon project,” Natasha Lamb, Director of Equity Research and Shareholder Engagement at Arjuna Capital, said. “Exxon Mobil should return capital to shareholders rather than gamble with investor resources. A fossil fuel volume play in the face of global climate change is simple folly. We should not be in a rush to find and burn all the carbon we can, regardless of cost and irreversible climate impact, but instead focus on value, figuring out how to do more with less.”

A recent report from Carbon Tracker Initiative (CTI) underscored Exxon's shortsighted on the financial implications of further fossil fuel exploration. “Looking at Exxon's resource estimates, the proportion of such high capital, lower return projects is likely to continue to rise, potentially lowering group returns—unless management changes course,” CTI reported. “If, as we believe, Exxon's investment in low return, high cost projects is a factor behind its deteriorating returns, increasing investment in such projects seems at odds with Exxon's emphasis on improving shareholder returns.”

The shareowner resolution incorporates aspects of CTI's financial analysis: “39 percent of ExxonMobil’s potential capex spend through 2025 requires an oil price of 95 dollar per barrel to be economical, and 17 percent requires a price of 115 dollar per barrel,” the resolution states. “By the end of 2025, CTI expects high cost projects to represent 35 percent of our Company’s potential future production.”

This week, after the Organization of Petroleum Exporting Countries (OPEC) failed to agree on a strategy to cut oil production, the price of a barrel of oil fell below $70.

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