SEC called to investigate Shell’s Arctic drilling disclosures

The Abrams Environmental Law Clinic at the University of Chicago Law School and international ocean advocacy group Oceana yesterday called for the U.S. Securities and Exchange Commission (SEC) open a formal investigation into disclosures by Royal Dutch Shell plc concerning the company’s activities in the United States Arctic Ocean.

The two organizations submitted a petition to the SEC identifying what they describe as material misstatements and omissions in Shell’s regulatory filings that render them insufficient under U.S. securities laws.

Risks of disaster

According to the petition Shell has not adequately disclosed the risks of a catastrophic oil spill. The organizations claim that Shell relies on boilerplate language and fails to mention that the spill response techniques it proposes to use are highly unlikely to be as effective as the company claims.

Shell also does not provide any estimate of the likely cost to the company as a result of a spill or a meaningful plan for how it would pay for the full costs of such an event, the organizations claim.

Furthermore, Abrams Environmental Law Clinic and Oceana claim that while Shell told federal courts and regulators that adverse litigation threatens its prospects in the Arctic, the company did not fully or promptly disclose this litigation to investors.

Data withheld?

“Investors need full disclosure of the risks and challenges of Shell’s activities,” said Mark Templeton, Associate Clinical Professor of Law and Director of the Abrams Environmental Law Clinic at the University of Chicago Law School. “Without all of the relevant information, Shell shareholders, analysts and others cannot fully assess the company’s financial prospects in the Arctic Ocean and cannot influence Shell’s choices about whether to continue to make huge capital investments in the region.”

This move comes as Shell seeks approvals to restart exploration drilling in the Chukchi Sea, offshore Alaska. The Bureau of Ocean Energy Management is currently reviewing Shell’s Chukchi Sea Exploration Plan. If it obtains the necessary approvals, Shell plans to use two vessels to drill up to six wells over several years, beginning in 2015. The company has stated that it intends to spend $1 billion on these activities in 2015.

Arctic unforgiving

“As we learned from Shell’s experience in 2012, the Arctic Ocean is remote and unforgiving,” said Andrew Sharpless, CEO of Oceana. “Companies like Shell cannot run from the reality that proposed oil drilling creates enormous risks for the ocean and for the company. There is no proven way to clean up a spill in icy Arctic conditions, and Shell has an obligation to make investors aware of that.”

The organizations point to the fact that despite trying for nearly a decade and spending more than $6 billion, Shell has yet to complete a single exploration well on leases purchased between 2005 and 2008. The company’s last efforts, in 2012, resulted in a series of mishaps and violations, culminating in the grounding of the drill rig, the Kulluk, near Kodiak, Alaska. In a statement, they also highlight that Shell and its contractors were subject to a series of government investigations and fines, and eventually the Kulluk was dry-towed to Asia and scrapped.

An investigation by the SEC would be an initial step toward enforcement, which could result in an injunction against future violations or a requirement to amend the deficient filings, among other penalties, reads a joint statement by Abrams Environmental Law Clinic and Oceana.

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