April 15 (Bloomberg) -- BP Plc shareholders approved executive pay and shot down objections to investing in Canadian oil sands, the world’s biggest crude reserves after Saudi Arabia.
Shareholders who proposed a motion at their annual meeting calling on BP to review the risks related to the energy- intensive extraction of heavy oil from tar sands in Alberta were defeated, according to early results. Chief Executive Officer Tony Hayward, under fire after being awarded a 41 percent pay increase in 2009 when BP’s earnings fell, had his remuneration approved in preliminary voting.
“BP is well aware of the extreme sensitivity of environmental issues for any investment in oil sands, and seems to have built conservative assumptions into the financial framework to allow for these extra costs,” said Ivor Pether, who helps manage $9.2 billion in assets at Royal London Asset Management. “There has been a notable upward shift in general in the trend for the awards of performance-related pay with little justification.”
The dispute echoed a similar row last year when about a third of BP’s shareholders opposed pay proposals for senior management. FairPensions, which represents unions, charities and faith groups, had urged BP to reconsider its Canadian oil sands investments, following a similar request to competitor Royal Dutch Shell Plc.
Preliminary Results
“The vote today is only one outcome of a wider process, which has catapulted tar sands risks to the top of BP’s agenda,” said Catherine Howarth, chief executive officer of FairPensions, in a statement after today’s voting. “The task for investors now is to make the most of the disclosures made to date, and continue to robustly engage with BP into the future.”
While about 15 percent of shareholders supported or didn’t vote on the motion to review Canadian oil sands investments, about 85 percent were opposed, said company spokesman David Nicholas. Preliminary results also showed that 84.2 percent of shareholders voted in favor of BP’s executive pay proposals, with 8.3 percent against it, according to Nicholas. Neither of the votes are final.
Hayward received 4.01 million pounds ($6.2 million) in cash and shares last year. That compares with Shell CEO Peter Voser’s pay of 3.36 million euros ($4.6 million).
Beating Exxon
BP’s remuneration committee said the company outstripped competitors in four areas, including output growth and return on capital employed, as it produced more oil and gas than Exxon Mobil Corp. for the first time.
Pensions & Investment Research Consultants Ltd., which advises investors with assets of more than 1.5 trillion pounds ($2.3 trillion), urged shareholders to reject the pay package.
BP estimates that oil companies will need to add as much as 60 million barrels a day in new production by 2030 to meet the world’s energy needs.
It has three oil sands projects, none of which have started producing. The Sunrise Oil Sands Project, BP’s joint venture with Husky Energy Inc., may yield 200,000 barrels of oil a day by 2020. BP brought in Devon Energy Corp. as an investor in the Kirby oil sands project last month, and took a stake in Value Creation Inc.’s Terre de Grace oilsands block.
Oil Prices
Rising oil prices are making oil sands developments more attractive. The Sunrise project was delayed last year after oil prices plummeted to less than $40 a barrel from a record $147 in July 2007. Prices have gained 70 percent in the past year to trade higher than $80. BP expects to make an investment decision on Sunrise by the end of the year, company spokesman Robert Wine said today.
“If you take a 20-year view of the world and look at energy demand growth, we have to fill that gap somehow,” said Alastair Syme, an analyst at Nomura Holdings Inc. in London. “It’s more energy intensive than other developments, and the carbon footprint is definitely bigger. BP has to make an assessment as to whether it’s economical.”
Oil sands are a grainy mixture of bitumen, sand and water. BP says that while 20 percent of the oil can be mined from the surface, it can tap into 80 percent of the reserves using steam wells underground. The company says it won’t mine the oil sands and will only use a process called steam-assisted gravity drainage, which will minimize the impact on the landscape.
BP is the biggest oil producer in the U.S. and is upgrading its refinery in Whiting, Indiana, to allow it to process more Canadian heavy crude.
--Editors: Stephen Cunningham, Raj Rajendran.
To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net. Eduard Gismatullin in London at egismatullin@bloomberg.net
To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net
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