The Ups and Downs of Fracking Disclosure

Photo by *Melody*. Some rights reserved.

Davis Polk wants you to be well informed when preparing environmental disclosures for upcoming 10-K and 20-F filings. In a recent client memorandum, the firm highlights key issues in this arena, including disclosure related to hydraulic fracturing.

The memo echoed the previous comments of Andrews Kurth, which suggested that the SEC was, perhaps, a little too enthusiastic in seeking fracking disclosure in late 2011.

The SEC came under fire during late summer 2011 for a perceived attempt to force the disclosure of information that was not otherwise legally required. In a September 2011 statement before the House Financial Services Committee on SEC Oversight, SEC Chairman Schapiro responded and assured lawmakers that the SEC is “not regulating fracking in any way,” it is not “in the business of regulating fracking” and that its “goal is not to vindicate any kind of environmental interest here.”

You can follow the heated dialogue between the SEC and public companies on Knowledge Mosaic’s recently renovated SEC Comment Letters search page. A search for the phrase “hydraulic fracturing” brings up more than 30 comment letters and responses since the beginning of 2011.

However, expect those numbers to decline. Davis Polk notes that “the SEC appears to have retreated from what was viewed as an attempted expansion of disclosure regarding the environmental impacts of hydraulic fracturing.”

But companies likely aren’t off the hook for long. Davis Polk’s memo goes on to point out:

[I]t appears interest by certain shareholders for greater hydraulic fracturing disclosure is increasing. In the 2011 shareholder proxy season, shareholder proposals requesting companies to report on the implications of their use of hydraulic fracturing went to vote at five oil and gas companies. The proposals averaged 40.7% support.

More on shareholder proposals relating to fracking here.

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