Reps. Lowenthal, Grijalva, Waters Call on SEC to Review Financial Risk Disclosure by Oil and Gas Companies

July 30, 2015
Press Release

Today, the ranking members of the House of Representatives Committees on Natural Resources and Financial Services announced a letter to the Securities and Exchange Commission (SEC) seeking to have the SEC review the adequacy of corporate financial disclosures by oil and gas companies with offshore operations.  In the letter, Representatives Raúl Grijalva (AZ-03), Maxine Waters (CA-43), and Alan Lowenthal (CA-47) request that the SEC "assess the need for additional financial disclosure of publicly traded oil and gas exploration companies operating in the Outer Continental Shelf, and in particular in the Arctic Ocean, and provide us with an explanation and justification for the status quo or further disclosure."

"Full disclosure of risk is essential to good decision-making by the public and without it our markets cannot function properly," Representative Lowenthal said. "I am concerned that oil and gas companies may not be disclosing their full risk exposure to the public.  The risks in offshore oil and gas operations are great and many, as was unfortunately demonstrated in the Arctic in 2012. The SEC has a vital role to play in ensuring that investors have all of the information to make sound decisions."

The Securities Exchange Act of 1934, Securities Act of 1933, and applicable SEC rules require publicly traded companies to disclose to investors material risks posed by the companies' operations.  These risks include the environmental, financial, and other risks associated with offshore oil and gas operations.

In their letter to SEC Chair Mary Jo White, the Representatives write that "Offshore oil and gas activities come with significant financial risks, and operating in the Arctic multiplies those risks.  A catastrophic spill in the Arctic Ocean would devastate coastal communities and sensitive ocean ecosystems, and would likely result in costs to the responsible party on the order of tens of billions of dollars. In addition, clean-up of an oil spill in the Arctic would be hindered—or rendered impossible—by ice, weather, darkness, and the lack of infrastructure in this remote and dangerous region."

The letter comes as the federal government has given Shell approval to begin exploration drilling in the Chukchi Sea.  The company's last efforts, in 2012, resulted in mishaps, government investigations, and fines, culminating with the grounding and eventual scrapping of the drill rig Kulluk.  The letter also follows a petition submitted in April by The University of Chicago Environmental Law Clinic and Oceana seeking to have the SEC open an investigation into the adequacy of Royal Dutch Shell's disclosures regarding its Arctic Ocean exploration program.

"Shell hasn't been transparent about the difficulties of drilling in the Arctic, which are too numerous to count," Natural Resources Committee Ranking Member Grijalva said. "After years of stalled construction, mechanical failures and damaged equipment, the company has lost the benefit of the doubt about the viability of its Alaskan projects. The SEC has every right to make sure Shell is telling its investors all there is to know about its latest boondoggle. I think investors and non-investors alike would be equally interested to know whether its rhetoric finally matches the reality in the Arctic: there is no safe way to drill there and there won't be for the foreseeable future."