MARATHON PETROLEUM CORPORATION | Audited report on asset retirement obligations at MARATHON PETROLEUM CORPORATION

Status
22.75% votes in favour
AGM date
Previous AGM date
Proposal number
10
Resolution details
Company ticker
MPC
Lead filer
New Jersey Pension Fund
Resolution ask
Report on or disclose
ESG theme
  • Environment
ESG sub-theme
  • Climate change
Type of vote
Shareholder proposal
Filer type
Shareholder
Company sector
Energy
Company HQ country
United States
Supporting materials
  • 2023-Marathon-Petroleum-ARO-exempt-solicitation-final.pdf Download
Resolved clause
Resolved: Shareholders request Marathon Petroleum Corporation’s Board of Directors issue an audited report to shareholders that contains the undiscounted expected costs to settle obligations for AROs with indeterminate settlement dates. The Board should obtain and ensure publication of the report by February 2024 at reasonable cost and omitting proprietary information. To allow maximum flexibility, nothing in this resolution shall serve to micromanage the company by seeking to impose methods for implementing complex policies in place of the ongoing judgment of management as overseen by its Board of Directors.
Whereas clause
Oil and gas companies are legally required to decommission certain long-lived tangible assets at the end of their useful life. The obligations associated with doing so are recognized as Asset Retirement Obligations (AROs) by the Financial Accounting Standards Board. The demand for refined products, such as gasoline, is anticipated to decline as alternative sources of energy become more widely adopted, whether because of consumer demand, government directives or other forces. As a result, the time to decommission refineries is anticipated to come due sooner than originally expected when the refineries began operating. Yet, investors have little insight into the associated costs of such decommissioning.
AROs are important accounting estimates, yet useful detail on midstream and downstream AROs is not included in the company’s financial reports due to uncertainty about the timing of decommissioning. According to the company’s most recent annual report, it owns 13 refineries, the majority of which are linked to the processing of high carbon products. The company has disclosed information in its most recent annual report about its recognized short and long term AROs. However, in respect of the unrecognized AROs, the company states that “[a]sset retirement obligations have not been recognized for some assets because the fair value cannot be reasonably estimated since the settlement dates of the obligations are indeterminate.”
Rising climate transition risks and responsive corporate climate strategies make it reasonably possible that near-term changes in legal or economic conditions could materially accelerate the realization of these obligations. If companies choose not to recognize the fair value of AROs on grounds that assets have indeterminate lives, it is imperative that they disclose the undiscounted costs associated with these material obligations. Absent this information, investors cannot assess the true risk-adjusted value of their investment nor how to deploy capital effectively.
Supporting statement
Supporting Statement: In the Board and management’s reasonable discretion, we recommend such report also include: (1) a range of potential settlement dates based on each asset’s estimated economic life, (2) probabilities associated with the potential settlement dates, with due consideration given to the potential impact of the energy transition away from fossil fuels, and (3) whether, based on known information, it is reasonably possible that these assumptions and estimates will change in the near term.

How other organisations have declared their voting intentions

Organisation nameDeclared voting intentionsRationale
British Columbia Investment Management CorporationForWe support this shareholder proposal asking the company to incorporate climate risk assessments in its audited financial statements. We believe climate change poses a range of material risks, especially to companies in high-emitting sectors. As such, enhanced disclosure on potential financial impacts would provide investors with additional information to assess related risks and opportunities. This resolution is aligned with the expectations and goals of the Climate Action 100+ engagement.
Christian Brothers Investment Services, Inc.ForThere is a groundswell of support from investors to better understand how the energy transition would affect the assumptions, costs, estimates, and valuations underlying corporate financial statements, including Asset Retirement Obligations (AROs). To the extent that assets will be uneconomic and therefore retired earlier than expected, ARO’s will be incurred earlier than expected. The acceleration of these costs may result in higher asset retirement obligation numbers in the accounts. It may also mean that the company may not have access to the amount of cash flows required to meet such obligations. Marathon investors have limited insight at present and can benefit from the report requested.
KBI Global InvestorsForAsset Retirement Obligations could present a material risk to investors in the energy transition and this disclosure will provide decision making insight that is useful to investors.
Anima SgrForShareholders would benefit from additional disclosure on the potential impacts that transitioning to a low carbon economy may have on the company and its operations. Such information would allow shareholders to better assess the company's efforts to manage and mitigate those risks.
Kutxabank Gestion SGIIC SAU.For

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