Comptroller Wins Battle as SEC Rejects Cabot Bid to Block Shareholder Vote

In a press release issued Thursday March 4 2010:

“New York State Comptroller Thomas P. DiNapoli today said the $129.4 billion New York State Common Retirement Fund (Fund) will continue to press energy companies to disclose to their shareholders the environmental and regulatory risks associated with unconventional natural gas extraction including hydraulic fracturing.

“Natural gas stores locked in dense shale formations like the Marcellus Shale in New York are an important source of energy, but there are reasonable concerns about the environmental impact and potential liabilities inherent in its development,” DiNapoli said. “Investors need to have quality information so they may weigh the risks and rewards of the companies they invest in. The development of the Marcellus and other shale gas plays must be done the right way. As shareholders, we want these companies to assure us that they have a full and complete appreciation of the liability risk, and that they’re taking steps to mitigate those risks.”

DiNapoli, as trustee of the Fund, has filed resolutions with five companies – Chesapeake Energy Corp., XTO Energy Inc., Range Resources Corp., Hess Corp., and Cabot Oil & Gas Corp. The resolutions request company boards to summarize for shareholders: the environmental impact of their unconventional natural gas operations; potential policies for the company to adopt, above and beyond regulatory requirements, to reduce or eliminate hazards to air, water, and soil quality from operations including those from hydraulic fracturing; and, other information regarding the scale, likelihood, or impacts of potential material risks, short or long term, to the company’s finances or operations, due to environmental concerns regarding fracturing.

One of the companies, Cabot Gas & Oil, attempted to block the resolution from a shareholder vote. DiNapoli prevailed when the Securities and Exchange Commission in late January issued a letter disagreeing with Cabot that the company had legal grounds to keep the resolution off the shareholder ballot at its annual meeting this spring.”

This raises some very interesting questions. 1. Is this standard practice for the Comptroller? If the fund holds stock in Coca Cola, does he ask Coke to “summarize for shareholders” the health impact of the product? We all know it rots our teeth and makes us fat. 2. The Comptroller is not an environmental regulator. The DEC is best equipped to monitor and regulate energy companies. 3. If the Comptroller has such misgivings about these energy companies or any other stock in the pension fund he should sell the stock.

The energy companies that wish to do business in New York already apply best practices and operate with great care. Requiring them to meet additional requests seems redundant and unnecessary. I don’t know if other states make the same demands on energy companies doing business in their states but I would guess not. New York seems to go out of its way to make it as difficult as possible to do business in the state. We should be encouraging the energy companies to do business in New York under the DEC’s proposed comprehensive regulatory safeguards, not presenting them with another business obstacle.