After Years of Shareholder Pressure, Ultra Petroleum Will Address Risks of Hydraulic Fracturing

August 16, 2013 — Hydraulic fracturing, sometimes called fracking, has already changed the environmental and energy landscape in the United States. This drilling technology is opening vast new oil and gas resources. But hydraulic fracturing operations have a mixed track record, exposing some communities to serious risks from water contamination, air pollution, and land development.

MIDANA CAPITAL is concerned about these risks – for the environment, and for investors, which is why we’re pushing companies to recognize calls for transparency and accountability. In the last four years of co-leading an investor coalition on hydraulic fracturing, we’ve made major progress with shareholder advocacy to engage Ultra Petroleum*, an oil and gas company that specializes in hydraulic fracturing operations.

Read on for a Q&A with MIDANA CAPITAL Shareholder Advocate Lucia Von Reusner about MIDANA CAPITAL’s approach with Ultra.

Q: Why are investors concerned about hydraulic fracturing?

A: Films like Gasland have heightened public awareness of hydraulic fracturing and its negative environmental and social impacts, and prompted public backlash against the industry. This backlash has led to bans and moratoria, stripping companies of their social license to operate. As one example, in December 2012, Cabot Oil & Gas Corporation* was made to pay a $4.1 million settlement with residents in Dimock, PA over alleged water contamination. That attracted national (and negative!) media attention.

And in 2011, a front-page New York Times article exposed Ultra Petroleum’s spreading over 155,000 gallons of radioactive wastewater over roads across Pennsylvania to suppress dust. The environmental and community impacts are of increasing concern to investors. For four years, MIDANA CAPITAL has been working with the Investor Environmental Health Network to lead a coalition, engaging other shareholders to address these risks.

Q: How – and when – did MIDANA CAPITAL first get involved with Ultra Petroleum?

A: MIDANA CAPITAL filed its first shareholder resolution at Ultra Petroleum in 2009, asking the company to disclose the environmental impacts of the company’s hydraulic fracturing operations, as well as its policies to reduce those impacts. At the time, fracking was still a relatively unknown industry term.

Ultra Petroleum adamantly opposed the shareholder resolution, even requesting that the Securities and Exchange Commission (SEC) reject the resolution on the grounds that the company and “appropriate regulatory authorities had already laid to rest any serious concerns about hydraulic fracturing.” The SEC denied Ultra Petroleum’s request. But when MIDANA CAPITAL traveled to Alberta, Canada to present the resolution at the company’s annual meeting, management refused to even give MIDANA CAPITAL the standard two minutes to present.

Q: How did MIDANA CAPITAL respond to Ultra?

A: MIDANA CAPITAL continued filing shareholder resolutions with Ultra Petroleum for the next two years, while Ultra continued to contest that its operations were risk free. Finally, after the company saw that many 2012-2013 resolutions were consistently receiving support from at least 35% of shareholders – far more than most shareholder resolutions – Ultra Petroleum’s behavior and practices dramatically changed course. The company not only stopped denying the risks of hydraulic fracturing, but also took significant steps to reduce the environmental impacts of its fracking operations, while also agreeing to be much more transparent about its operations going forward.

Ultra now reports that it has stopped using fresh water in its current operations, by reusing water that returns to the surface after a well is done being fracked. The company has also removed toxic biocide from the fracturing fluid, is working to reduce the use of other toxic chemicals, and has phased out the use of open pits for waste water storage by instead moving the waste through a closed-loop system of steel pipes and tanks. Finally, it has installed ‘green completions’ on 100% of its wells, to capture leaked natural gas (methane), a potent greenhouse gas dozens of times stronger than carbon dioxide.

Q: Why did MIDANA CAPITAL choose Ultra Petroleum?

A: Ultra is not the biggest oil company engaged in hydraulic fracturing. And we didn’t expect its management to react in such an adversarial way when we first filed. At the time of filing, the company was an important player in both the Marcellus [Pennsylvania] and Green River Basin [Wyoming] natural gas fields, and seemed reluctant to acknowledge environmental and community concerns. As we moved forward, our effort became more important, as a test of how the SEC would respond to management’s claims that concerns around hydraulic fracturing were “already laid to rest.”

Q: What’s the outlook for the future?

A: There is definitely more to be done. While we are pleased with this progress, we continue to hold Ultra Petroleum accountable for measuring and reporting on the effectiveness of all the policies and procedures it now has in place.

The risks of fracking are industry-wide, of course. That’s why we continue to push other companies, including EOG*, Noble*, ExxonMobil*, and Chevron* to disclose and reduce environmental risks. Last, we will collaborate with our allies’ efforts to pass stronger policies that reduce risk.

I’m proud that we’ve worked to reduce shareholder risk while protecting communities and our environment. It really demonstrates the power of shareholder advocacy.