Exclusive: Investors press U.S. shale oil drillers to control flaring

Wed Mar 28, 2012 11:40pm EDT
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By Timothy Gardner

WASHINGTON (Reuters) - Investors representing $500 billion in assets are pushing energy companies in the shale oil rush in North Dakota and other states to disclose the amount of natural gas they burn - a practice they see as a wasteful financial risk.

"We want to encourage companies to articulate plans for resolving this issue while shale oil production is still in its relative infancy," said Karina Litvack, the head of governance and sustainable investment at F&C Asset Management.

Litvack is one of 36 investors who sent a letter to 21 oil drillers including Continental Resources Inc (CLR.N: Quote), Exxon Mobil (XOM.N: Quote), and Chesapeake Energy Corp (CHK.N: Quote) asking them to disclose the amount of natural gas they are burning off, or flaring, at shale oil operations in North Dakota, Texas, Colorado and Ohio.

While shale oil drilling has helped reverse a decades old decline in U.S. crude output, the lightening pace of new development may also have an environmental dark side. The investors and others say emissions from flaring and venting natural gas cause air problems and increase global warming.

The investors want the companies to disclose by May 1 how much flaring they are doing and to meet with them to plan ways to tackle the problem.

The practice "poses significant risks for the companies involved, and for the industry at large, ultimately threatening the industry's license to operate," they wrote in a letter to the companies.

Energy companies flare natural gas they are unable to capture and sell as they produce shale oil which is much more valuable. The practice, which had been in decline in the traditional oil business, is now soaring at shale oil formations in North Dakota and Texas where the infrastructure is not keeping up with the boom.

Techniques including hydraulic fracturing, or fracking, have given drillers in those states access to vast new deposits of shale oil. But some states, many of which are new to drilling, do not have strong regulatory systems in place.   Continued...