The Arctic in New York – shareholders scrutinise Shell’s next move

5 Jan 2014 james

OilBPMika Minio-Paluello, Anna Galkina and James Marriott travelled in North America as part of a tour over September and October to promote The Oil Road – Journeys from the Caspian to the City of London. The eighth of a series of blogs on the journey comes from New York…

It was Maurice Bridgeman who really made the decision in 1959. Of course he needed the support of John Pattison, Harold Snow and Eric Drake, but Bridgeman, Chairman of British Petroleum, led the way.

Bridgeman’s father was a Conservative peer Viscount Bridgeman, and First Lord of the Admiralty. As a boy Bridgeman had been sent to be educated at Eton College. As a young man he’d attended Cambridge University. Indeed all four of those men studied there. Four pillars of the British Establishment around the oval table in the Board Room of BP. They were acting on the advice of Peter Cox, Head of Exploration in the company. Cox in turn drew on information supplied by BP geologists. For he, like the other men, had never visited Alaska.

At that oval table in Finsbury Circus, at the heart of The City, these men in their fifties and sixties, with their heads full of an empire in decline and their bellies full of London, made a decision on 3rd April 1959 to buy the oil leases for 312 square miles of Alaskan tundra, great swathes of hunting grounds and fishing grounds vital to the livelihood of the Inupiat. A vast flat land that blooms with wild flowers in the summer, that is home to caribou, foxes and two hundred species of birds. A land hunted for thousands of years in the same manner, with husky dogs and whaling boats. It was hunted still. The Inupiat had not been conquered by the Russians or Americans. However the leases over their lands were brought by BP in Washington. For Alaska was not yet a state, this was Federal Territory, effectively a colony of the USA. (A few years later, Charles Edwardsen, head of the Arctic Slope Native Association, decried these “white trespassers.”)

Robin Adam, head of BP’s Finance & Accounts, approved the purchase and the sum was raised from the company’s own capital. This was just the beginning. Over the next seven years Bridgeman sanctioned the purchase of 613,000 acres of extraction leases, a total of nearly 1,000 square miles, for the sum of $6 million.

On that first day, on in 1959, over that oval table, the voice of Bridgeman turned those hunting grounds into industrial assets. The fate of the tundra, the fate of the Inupiat and the fate of BP became inextricably linked. The future of the land was altered irretrivably. And on the evening of that decision, Maurice Bridgeman went to his home in the West End in London and had dinner with his wife Diana

Manhattan, New York City, New York

Over half a century later I’m in the Morningside Heights neighbourhood of Manhattan presenting the work of Platform, ShareAction and Greenpeace UK to a room of analysts, investment strategists and several Directors of Environmental, Social and Governance Shareholder Engagement. This is the Fall gathering of the ‘Interfaith Centre on Corporate Social Responsibility’ (ICCR). The ICCR was established in 1972, and is ‘the pioneer coalition of active shareowners who view the management of their investments as a catalyst to promote justice and sustainability in the world’.

As has been the case many times over the past five decades, Alaskan environment and communities are the focus of a great deal of concern. Oil was first discovered at Prudhoe Bay in 1968 and in the following years, a consortium led by BP pumped it across mountains, rivers and tundra to the terminal of Valdez built on the southern coast of Alaska. Today on the North Slope, facing the Arctic Ocean, is America’s largest oil field, a vast industrial complex of wells and pump stations, workers’ housing blocks and helipads, sprawling across 200,000 acres. Bridgeman’s decision in 1959 played a key part in this outcome.

After thirty years of oil production – highly profitable for BP and its fellow companies – the North Slope fields are now in decline. The next frontier is the Alaskan offshore prospects. The plan is to extract oil from deep beneath the Arctic Ocean, in the Chukchi Sea and the Beaufort Sea. This is an an extremely challenging environment in which to construct and operate manned oil production platforms – the ocean is frozen ice pack for over half the year, the sun never rises for 70 days, temperatures can drop to minus 47 degrees Celsius, and the Arctic storms are ferocious. 

Shell is leading the way in the attempt to extract oil from the US sector of the Arctic Ocean. Between 2004 and 2008 the company purchased licenses to drill in the Chukchi and Beaufort Seas, at a cost of approximately $2 billion. As with Bridgeman’s decision in ’59, this expenditure of Shell’s capital was made far from the public view, but doubtless it involved the CEO, Jeroen van der Veer, the Chief Financial Officer, Peter Vosser, and head of Exploration & Production, Malcolm Brinded. In the nine years since the purchase of those licenses a team in Shell has been hard at work in Den Haag in Holland, Anchorage in Alaska and Houston in Texas.

Each of the licenses in these Arctic seas is valid for ten years. So if Shell is unable to drill exploratory wells, to confirm or deny the presence of oil in the rocks beneath the seabed and to determine whether it can be extracted at a profit within that time, then the capital expended on the licenses will have been wasted. Their task is therefore to undertake the drilling as quickly as possible, within the safety parameters laid down by the Federal regulatory authorities – the Bureau of Safety & Environmental Enforcement, the Bureau of Ocean Energy Management, and the Environmental Protection Agency. The team at Shell has been badly failing in this task. After many delays, the company finally announced that it would sink 7 wells in the Chukchi Sea in the summer of 2012. But the engineers on the drilling rig and support vessels repeatedly failed to reassure the regulators that their equipment was safe, consequently the project schedules ran ever later, and eventually the sea ice came in. The Kullak rig only drilled for 36 hours in total, and less than half a well was sunk. 

There is deep concern among the Inupiat communities who live by the Chukchi Sea – concern that any oil spill, and the process of drilling itself, will destroy the ocean, destroy the basis of traditional life in the Arctic. Shell sent its teams of ‘social engagement’ personnel to Point Hope in July 2009 to explain the company’s position, to reassure residents that everything would be done with the utmost care, and that a spill would never take place. But the residents were not reassured. Mae Hank, a representative of ‘Resisting Environmental Destruction on Indigenous Lands’ (REDOIL), travelled from Point Hope to Den Haag in May 2013 to make the views of her community clear to the attendees at the Shell AGM. Mae calmly addressed the board saying: “We all share the same food out of the ocean. We are terrified that our food is threatened by the offshore drilling. You are coming into our garden – the ocean is like a garden to us.”

R- Mae Hank; L - Eriel Deranger.
R- Mae Hank; L – Eriel Deranger.

She threw doubt on their operational capabilities: ” The ocean is covered with ice for 6 to 8 months a year and Shell does not have any proof that they can safely contain an oil spill during the winter months midst the strong currents and powerful storms.” She demanded “How will Shell compensate us for any spill that kills our food? How will they compensate 20 generations, to keep them going through the winter?.” No answer came.

And there is concern also among the analysts in the room in Manhattan. Concern that decisions have been, or are being, made in the senior management of Shell that threaten not only the ecosystems of the Arctic and the Inupiat communities that depend upon it, but also shareholder capital. It is widely understood by those in the room that an oil spill in the Arctic Ocean, even remotely on the scale of BP’s Deepwater Horizon Disaster, would lead to the rapid demise of a corporation even as large as Shell. The environmental and social devastation in the Gulf of Mexico following the rig explosion on 20th April 2010, led the value of BP’s shares to fall 50% in just eight weeks. The corporation was within days of filing for bankruptcy – an act that would have been disasterous for its US shareholders. Far away from the distress in the southern Gulf there was tense concern on the New York Stock Exchange.

Back in 1959 when Bridgeman made his move, British Petroleum was majority owned by the British government and the remaining shareholders – large institutions such as Prudential Insurance – engaged themselves very little in the decisions made by the board. This state of affairs is no longer the case. Things have changed. The room at the ICCR is full of analysts, strategist and directors who are closely monitoring issues surrounding the companies they invest in. They are part of a slowly growing investment movement concerned with companies’ ethical, social and environmental impacts, a movement that Platform, ShareAction and Greenpeace have been working with for five years.

Arguably some of the most powerful actors who can effect whether or not the oil industry exploits the Arctic Ocean are here in New York City. Some of the largest holdings of shares in Shell are under the control of Chase Nominees and BNY Nominees. The former is owned by JP Morgan Chase headquartered at 270 Park Avenue, and the latter is owned by Bank of New York Mellon at 1 Wall Street. Under the Nominee system shareholders ‘nominate’ another institution, such as a bank, to act on their behalf in all matters that involve interacting with the company that they, the shareholders, actually own. It’s a form of ‘outsourcing’ of administrative control. It’s a bit like absentee landlordism. It gives the nominees huge power, a block vote at any shareholder meeting, and makes a nonsense of talk of ‘shareholder democracy’. The question is, will the responsible individuals within Chase Nominees and BNY Nominess act to prevent the further destruction of the lands of the Inupiat?

Shell has not yet locked itself into the Arctic Ocean – it can turn away from the industrialising that great sea. It can decide not to send out the drilling rigs, to let those licenses expire, to make a careful retreat. Although it will attempt to make that decision in private – around the Den Haag equivalent of the oval table – this time such manoeuvres are being carefully watched by civil society and some investors – such as those in the room at ICCR.

With thanks to Julie Tanner, Anna Galkina and Mike Levine

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